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THE 



UARTERLY JOURNAL 



or 



'V 



ECONOMICS 



Vol. I 



OCTOBER 1886 



CONTENTS 

1. THB REACTION IN POLITICAL ECONOMY 

Cfaarlce ¥* Due bar 



r 

^1 II. PBIVATE MONOPOLIES AND PUBLIC EJOHTS 
■^ Arthur T fUdley 

1IL SILVER BEFORE CONGRESS IN 1836 . 

3. DflLiia HartoQ 

I NOTES AND MEMORANDA 
Silver a.8 o RejpilAtor of Prices 
^^Tfae AiithtaciiCi Geometric, And HftntiotUc Mean 3 
^pLefiftlisioii for LAhor ArbitratlQn , . . . 

CORRESPONDENCE ! Letter frpm PaMs 

Artbur Maiiifin 

RECENT PUBLICATIONS UPON ECONOMICS 



No, I 



76 
Si 

103 



APPENDIX 

WAGKER ON THE PRESENT STATE OF POLIT- 
ICAL ECONOMY 
PRICES IN IRELAND 



i»3 
154 



rUBLlSUED FOR HARVAMD UNIVERSITY 



BOSTON 
GEORGE M, tLUS Ml FRANKLIN STREET 

isa6 



• • 



The Oaarterly Journal ol 



I 



s establislied as an aid to investigators atid 
a mediiim of publication for studies iii 



Ecmmnk Hisfoo^, CriUcism, and 

and for the discussion of the iitipojtant 

Questions of tbe TJap 

It mil cordially welcome any r : nbuj 

leaving to the writer the sole respon or 

It will present an accurate 

Record of Current Publia 

upon Economics, in aU of the principal kngij 
important ^ 

t/irticles, "Bocummts, and Siaim 

as its space will penntt, for the use of those inten 
blanches of political science. 

The Journal will be issued October 15; Ji 
and July 15. 

It will contain regularly ua pages Svo, w 
sheets as may be required from time to time.' 

Comrounicaiiona for the Editorial managcmeot 
THE QUARTERLY JOURNAL OF ECONOMICS 

fiusine^ letters, subscriptions and tcmittaucex, \ 
141 Franklin Stpeet^ Boston. ^ 



SUBSCRIPTION PRICE. TWO DOLLAR? 



LAPSUS undmmtakem By 



r A W4 
J UWR 

CAimou 

*ORTim 

stifoN n 



Co^vsifiHT mf G»9. B. Et4J3, tm. 



!♦■ 



THE 



QUARTERLY JOURNAL 



OF 



ECONOMICS 



VOLUME I 



PUBLISHED FOR HARVARD UNIVERSITY 



BOSTON 

GEORGE H. ELLIS, 141 FRANKLIN STREET 

1887 

H 



Ldand Stanford, Jr. 



CONTENTS OF VOLUME I. 



SUBJECTS. 

FAOB 

Arithmetic, Greometric, and Harmonic Means. By F. Coggeehall . . 83 
Books announced : — 

Dictionnaire des Finances, resumed 223 

Thorold Rogers, Bank of England 223 

Thorold Rogers, History of Prices, V., VI., 223 

Ward's Reign of Queen Victoria 224 

Business Profits, The Source of. By Francis A. Walker 265 

Business Profits, The Theory of. By Alfred Marshall 477 

Colonial Inyestments, English. Note 471 

Cost of Production, Analysis of. By S. M. Macvane 481 

Deposits as Currency. By Charles F. Dunbar 401 

Florin, English Double. Note 470 

Germany, The Economic Morement in. Letter by Erwin Nasse. . . 498 

Gtold Currency of England, Test of its Condition. Note 225 

Gold and Prices since 1873. By J. Laurence Laughlin .... 319, 385 

Greenbacks, Mr. Manning's Proposition to pay off. Note 223 

Horton's The Silver Pound 469 

Income Tax, Proposed French. Note 472 

Knights of Labor, An Historical Sketch of. By Carroll D. Wright . 137 

Labor Arbitration Acts, Action under. By Edward Cnmmings . . . 487 

Labor Arbitration, Legislation for. By H. M. Williams 86 

Labor Statistics, English. Note 376 

Law's System, An Historical Study of. By Andrew McFarland 

Davis 289,420 

Lottery in Italy, Act of 1880 for Counteracting. Note 226 

Marshall's Theory of Value and Distribution. By J. Laurence Laughlin 227 

Merchant Marine of the World. Note 469 

Overproduction. By Uriel H. Crocker and S. M. Macvane .... 362 

Paris, Letter from. By Arthur Mangin 91 

Political Economy, The Reaction in. By Charles F. Dunbar .... 1 » 

Political Science and Law, Number of Publications in since 1875. Note 359 



iv QUARTERLY JOURNAL OF ECONOMICS 

PAGE 

Precious Metals, Royal Commission on the Valae of. Note .... 78 

Prices in Great Britain, Oermanj, France, and the United States. Tables 385 

Private Monopolies and Public Rights. Bj Arthnr T. Hadlej ... 28 

Profit-sharing, Some Objections to. By Richard Aldrich 232 

Profit^haring, The Theory of . By Franklin H. Giddings 367 

Property Tax of the Canton de Vaud. Text of the Law 255 

Pablic Debts of Europe. NoU 358 

Public Debt of the United States, Register's Report upon. Note . . 357 
PubUc Lands, The Disposition of our. By A. B. Hart .... 169, 251 

Publications upon Economics, List of Recent 103, 243, 378, 507 

Riulway Question in Europe, Some Curious Phases of the. By Simon 

Sterne 453 

Resumption in Italy. Note 356 

Revue d'Economie Politique, noticed 356 

Ricardo's Use of Facts. NoU 474 

Silver before Congress in 1886. By S. Dana Horton 45 

Silver, Effect produced on English Trade by the Fall of. Note ... 79 

Silver as a Regulator of Prices, Theory of Walras. Note 81 

Stourm's Bibliography of the French Finances for the Eighteenth 

Century. Note 76 

Strike, The South-western, of 1886. By F. W. Taussig 184 

Trade Depression, English Official Publications caused by. Note . . 76 

Treasury Balances Dangerous in France. Note 469 

Value, Theory of. Letter by Professor Marshall 359 

Wages and Prices, Report upon for Tenth Census. Note 79 

Wagner on the Present State of Political Economy. Translation and 

Risumf 113 

Wheat Lands, Alienation of by Russian Peasantry. Note 77 

WRITERS. 

Aldrich (Richard). Some Objections to Profi^sharing 232 

CooGESUALL (F.). The Arithmetic, Geometric, and Harmonic Means 83 

Crocker (Uriel H.). General Overproduction 362 

CuMMiNOS (Edward). Action under the Labor Arbitration Acts . . 487 
Davis (Andrew McFarland). An Historical Study of Law's System 289, 420 

Dunbar (Charles F.). The Reaction in Political Economy .... 1 

Deposits as Currency 401 

GiDDiNOS (Franklin H.). The Theory of Profit-sharing . i ... 367 



CONTENTS OF VOLUME I v 

PAOB 

Hadlet (Arthur T.). Private Monopolies and Public Rights ... 28 
Hart (Albert Bushnell). The Disposition of our Public Lands . 169, 251 

HoRTON (S. Dana). Silver before Congress in 1886 45 

Lacghlin (J. Laurence). Gold and Prices since 1873 319, 385 

Marshall's Theory of Value and Distribution 227 

Macvanb (S. M.). General Overproduction 365 

Analysis of Cost of Production 481 

Manoin (Arthur). Letter from Paris 91 

Marshall (Alfred). On the Theory of Value 359 

The Theory of Business Profits 477 

Nasse (Erwin). The Economic Movement in Germany. Letter . . 498 
Stbbne (Simon). Some Curious Phases of the Railway Question in 

Europe 453 

Taussig (F. W.). Thfe South-western Strike of 1886 184 

Walker (Francis A.). The Source of Business Profits 265 

Williams (H. M.). Legislation for Labor Arbitration 86 

Wright (Carroll D.). An Historical Sketch of the Knights of Labor 137 



INDEX OF AUTHORS 

MBNTIONBD DJ THE LISTS OF EE^EXT PUBUCATIOKS. 






■%" 



XAMB PAGE 

Achaud.A. H. D 110 

Adams, H.C. . 103,107,380.382.509 

AdIer.G 243 

Adler.a 380 

Akaao, G 380 

Alexander, E. P. 380 

Allard,A 107 

Arendt.0 244 

Atkinson 250,378,384 

AUrott,0 108 

Aubry.J MO 

Auburtin,F 107,260 

Au&eflB, Frhr. Ton 106 

Augspnrg, G. D 246 

Aospitx, R 381 

D*Aiissy,D 507 

Austin, H 110 

Baar,F 110 

BMher.O Ill 

Baokh*ii8,W 108 

B&hr,0 249 

Bamberger, L 108 

Barberet,J 245,510 

Barboar,D 107 

Bark&n, L 108 

Barker 250 

Barkoonine, M 247 

Bamett,&A. 249 

Bamreither, J. M 247 

Bams, W. £. 109 

Barthold, K. 245 

Bascom. J 378 

Basselin.T. B 112 

BasUble.C. F 380 

Baadrillart, H. 104 

Baomgarten, J 244 

Bax, E. B 109, 247 



KAME PAGE 

Bayles, J. C 109 

Beanoaire, Vioomte R. de . . . 104 
Beaorogard, P. V. . . 383. 507, 511 

Behrends. A. J. F 109 

Bell, Sir L. 379 

Bemis. E. W 382. 511 

B^rard-Varagnao 250 

Berghoff-Ising. F 249 

Bernard, F m 

Bertagnolli, C. . . . . 105, 110, 249 

Berthold, G no 

Besobrasof, W 104 

Bienaym^, G 379 

Biollay, L 104 

Birkmyre, W 105 

Block, M Ill 

Boalt,J.H. 247 

Boocardo, G 104 

Bockh, A. 104 

Bohm-Bawerk, E. TOn . 103,243.378 

Bohmert,V 110,112,247 

Bonwiok, J 378 

Booth, C 112 

Borght, R. T. d. Ill 

Boanie.& 106 

Bontmy, E. 507 

Bowker, R. R. 103 

Brabaaon. Lord 247, 568 

Brakenhaosen, F. 509 

Brants, y 378 

Braun, A. 105 

Braon, K. 104 

Breitenbach, W 379 

Brelay.E. 1«6 

Brett, S. - 106 

Briokdale,C. F 249 

Brown, T. E 109 

Briickner, G. G 508 



VUl 



QUARTERLY JOURNAL OF ECONOMICS 



KAKB PAGE 

Buchenberser, A. . . . 249, 383, 511 

Biioher, K. 244 

Baohwald, G. von 243 

Baraett,J 248 

Banil, C 010 

Barekhard-Biflohof, A. .... 107 

BozhoTden, Baron O. von . . . 110 

Campbell, H 382 

Cavour, C 384 

Cemusohi, H 381 

Chailley, J 106 

Chalve, J. P 247 

Charpentiery D 104 

Chevallier, E 249,382 

Chevassus, H 247 

Cheysson, E 249 

Clarke, C.B 103 

Clarke, H. W 381 

Clarke, J. B 243, 378 

Clement, A 247 

Cleroq, P. H. de 106 

Clerke, E. M 105 

Cleyeland, R. J 104 

Cognetti de Martiia, 8 378 

Cohn.G 106,243,245,379 

Conrad, J 381,382 

Coasa, L 381 

Coaroelle-Seneail, J. Q 108 

Courcy, A. de 109 

Cox, T 112 

Craigie, P. G 511 

CucheTal-Clarigny, P.-A. . 106,107 
Cunningham, W 382 

Danger, L m 

Darnell, C 382 

Danson, J. T 103 

D*Aalni8 de Bourouill, J. . 248, 507 

Davoglio, G 509 

I>elin»P 110,111 

D*Eichthal,E 334 

Dekoninok, A 330 

Del Mar, A 246 

Dennis, B 245 

Deville, G 510 

De Wilson, P. A. B 378 

D'Harcoort 248 



KAMB PAGE 

Diestelkamp, L 109 

Dietsel, H 103,243 

Diflfret, A. de 103 

Dohn, R. 383 

Domsthorpe, W .382 

Dormoy, E.' llO 

Dom, A 381 

Dos Passos, J. R 380 

Dramard, L 510 

Draper, G 106 

Duvergier, V 105 

Eden, F. M 1O6 

Edgeworth, P. 8 112 

Eheberg, K. T 379 

Elder, C 248 

Elliott, H,W 243 

Ellison,? 105 

Elster, L 512 

Elton, C.I Ill 

Ely, R. T 103, 109, 378. 611 ' 

Endemann, W 245 

Engels, P .507 

EymondtE 509 

Paber, R 330 

PauohiUe, P 247 

Faveau, G 103 

Pechner, H .243 

Felix, L 243 

Pitzmaurioe, Lord E 249 

Pontpertnis, A. P. de 507 

Forster, E 106 

Foamier 50T 

Pournier de Plalx, E. . . 247,381 

Poville, A.de 249,384 

Fowler, W 246 

Foxwell, E. 245 

FoxweU,H.8 248 

Frankenstein, K 244 

PreiberKer, G 509 

Freund, L. 109 

Friedlander, H. 109 

Frommer, H 109 

Puld, L 250 

Funck-Brentano, T 378 

Purrer, A 104 

Fniier, P .381 



INDEX OF AUTHORS 



IX 



HAMS PAOB 

Gartner, F 108 

Oantier, A. 109 

G«dde«,P 248 

Geering, I 104 

Geiflster, A. 105 

Gelehrt, A 246 

George, H 382 

Germain, H 381 

Germann, H 106 

Gibb8.H.H. 246.247 

Giddings, P. H. 378 

CHde, C 507 

Gm,B. . 509 

GlmeUC 246 

Gladden, W 109 

Gla88on,£ 248 

Gncwt, R 110 

Godin, J. B. A 109, 510 

Godkin.E.L 380 

Gomel, C 384 

Goodnow, F. J 106 

Gopfert, R. 512 

Gorbunoff, W 105 

Gorges, J. M 106 

Graham, W 107.109 

Grenfell, H. R 246 

Grier8on,J 246 

Grenlond, L 511 

Gruner, E 511 

Gudrin, U 105 

Guyot, Y 381, 508 

Hadley, A. T. . . 103,245,509,512 

Haigh, H. A Ill 

Hall, T. H 249 

Hammerstein, A. Ton .... 105 

Hankiewioi,H 381 

Hansen, J. N 384 

Harris, W. J 379 

Hartmann, G 246 

Hasse.E 248 

Haupt,0 107 

Hausmann, 8 383 

Herkner,H 378 

Herricke, F 106 

Herrmann, E 507 

Hertika,T 103,381 

Hertiog, A 248 



KAMB PAOB 

Heyd, W 243 

Heyer, F 105 

Hilgard, E.W 245 

Hillon, A Ill 

Hirsch, M 109 

Hirscbberg, £ 110 

Hoare, H 107 

Hoffmann, L 111,249 

Howell, G 380,508 

Howland, E 109 

Haber 105 

Huber, F. C 509 

Humbert, G 509 

Humbert, L 510 

Hurlimann, H 380 

Hyndman, H. M 107 

Ingalls, J. K 507 

Jaoobi. S 510 

Jager, E 379 

James, E. J 103, 112 

Jansen, C. W. 244 

Jani^, A. de 107 

Jastrow, J 607 

Jeans, J. S 245.380,508 

JoUes, 103 

Jones, B 248 

Jordan, W. L 107 

Jourdan, A 384 

Juglar, C 107, 108, 610 

Kappler, A 243 

Karger, K 248 

Karyohew, N. de 382 

Kaufmann 106 

Kaufmann, R. Ton . . 107, 381, 509 

Keith, J 509 

Kempner, N 611 

Keussler, J 611 

Kirohoff, A 379 

Klauss, A 608 

Kleinwaohter, F 245 

Knevala, 8. W 112 

Koohtitdiy, 378 

Kogler, K 383 

Konig, G 609 

Kral,F 610 



QUARTERLY JOURNAL OF ECONOMICS 



VAUX PAGS 

Kramar, K 107 

Kr^csi, 1 105 

Kriegsman, G 382 

Krieter, W 611 

Kriiger, H. C 509 

Kiittncr.W 112 

Laoombe, E 246 

Lampreoht, K 243 

Laneesan, J. L. de 244 

Lasson.A 382 

Laar, F 382 

Laveleye, E. de 383 

Lee.A. E. 108 

LefebTre,G 243 

Lehr, J 103 

Upoy-Beaulieu, P. 105, 106, 107, 110, 

243, 246, 247, 249, 379. 382, 

509 

Lesnaax.X 107 

Lethbridge, Sir R 247 

LevaaBear.E 112,512 

LeTi,L 108,508 

Levi-Fleory, £ 249 

Lewald,F 246 

Lexis, W 108, 250 

Leyen, A. t. d 512 

Lleben, R 381 

Limonmxii C 245 

LiDBchoten, J. H. Tan .... 243 

L611,L 381 

LoonuB, S. L 508 

Loria, A 110, 383 

Lorimer, G. C 382 

Loach, H 512 

Lo«a,T 112 

MaUock, W. H 383, 511 

MamroUi, K 106.380 

MandeUo.K 107 

Blangia, A 110 

Mansuy, E 511 

Manii, C Ill 

Marcus, V 245 

Ifareecotti, A 382 

MarshaU, A 382 

BdarshaU, W. V . 248 

Martens, H 380 



IfAini PAGE 

Martin, J. B 384 

Marx, K 103 

Mariano, F 107 

Mayer, J 107 

MoLeod,H. D 243,507 

McNeill, G.E 382 

Medley, G.W 380 

Mehner,H 383 

MeiU.F 508 

Meitzen, A 250 

Melliok, A. D., Jr 244 

Menger, A 248 

Merlino, F. S 382 

Miaskowski, A Ill 

Mlchaux, E 248 

Mills, H. V 248 

Molinari, E. de 379 

MoUnari, G. de . . . . 110, 244, 378 

MoUer, H 250 

Mongin, M 510 

Morgan, A 508 

Morris, W 248 

Mortara, A 382 

Moxon, T. B 108 

Muhlbreoht.0 384 

MulhaU, M. G 244, 507 

Muller,P 381 

Muller,W 112 

Munsterberg, E. . 110, 112, 248. 384 

Nagai 379 

Nasae, E 103,379 

NeUl, H. H 108 

Neumann, F.J 111.512 

Nenmann-Spallart, F. X. t. . . 509 

Neurath, W 248,378 

NewbiggingjT 508 

Newcomb,S 103,109 

Newton, R.H 382 

Neymarok, A 246,381 

Nicholson, J. 8 510 

Nordling, W. de 380 

Norman, C. B 104 

Norman, J. H 382 

Oberwinder, H 248 

OcheDkowski, W. Ton .... 105 
Oeohelhauser, W 248.511 



INDEX OF AUTHORS 



XI 



PAOB 

Oiioken,A 245 

Onslow, Earl of Ill 

Orgea8,J 244 

Osgood, H.L 249 

Paasohe, H 383 

Paget, Lady 250 

Papa d' Amioo, L 247 

Patten, 8. N 103 

Panliat, L 104,379 

Pendri^, H 508 

Penzance, Lord 106 

Petera, K 379 

Pfknnstiel, 8. A 246 

PhilippoTioh, £. von 103 

Philippsberg, £. P. Ton • . . . 108 

Phillipfl,J.P 378 

Phipson. C. B 109 

Pigeonneaa, H 244 

Pilling, W 249 

PlanU, P. C. Ton 248 

Poinaard. L 512 

Polakowsky, H 345 

PoUard.T. J 381,382 

Powell, G.B 508 

Powera, F. P 382 

Price, L. L. F. R 511 

Prothero, R. E 249 

Quark, M 110 

Rabbeno,U 249,511 

Rabino,J 382 

Rae,J 108 

RaJ&loTioh.A 249 

Rasp, C 112 

Rauohberg, H 108 

ReeTes, J 507 

Rein, J. J 243 

Reitienstein, Frhr. Ton . . 109, 248, 
381, 384, 512 

Resch,P 103 

Reyer, £ 508 

Reynaad, £ 250 

Reynand, L 107 

RIoca-Salemo, C. ..... 510 

Riohland HI 

Riohter 244 

Riohter, B 109 



HAMS PAGB 

Robin, E 511 

Rogers,J. £. T 507 

Romstorfer, C. A 384 

Ronoali, A 103 

Roscher, W 246 

Rosmini, C 110 

Rahland,a Ill 

Ryan, D.J 511 

8alraon, C. 8 244 

8almon, £. G 110 

8artoria8 t. Waltershausen, A. . 109 

8aaerbeck,A 108 

8aTage, M. J 109 

Sax, E 507 

8ay, L 107 

SbrqjaTaoca, L 509 

8ohafer, W 103 

Schaffle, A. E. F. . 244,378.379,509 

8ohanz,Q 246,509 

Scharling, W 246. 247 

Scheel, H. Ton 384 

8ohenok, A. F 248 

Schlieben, R. Ton 105 

8oUItte, B Ill 

Schmidt, C 882 

8ohmidt, H 108 

8ohmidUWameok 511 

SohmoUer,G 104,244,379 

8ohneider, A 249 

8obdnberg, Q 103. 109, 378 

8chonbom,T 106 

8chrader, 105 

8chweitier, W 106 

Somtton, T. E 249 

fc^eifert, W 382 

Seligman, E. R. A. . . 103,110,508 

8einler,H ; . 105,508 

8haw, A 248, 507 

Shearman, T.Q 509 

ShosakiSato Ill 

ShriTer, £. J 509 

8idgwiok,H 247,249 

Simmons, A 244 

Smith, H.H 249 

Smith, H.L 883 

Smith, L 248 

Smith, R.M 103,110,112 



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THE 

QUARTERLY JOURNAL 



OF 



ECONOMICS 



OCTOBER, 1886 



THE REACTION IN POLITICAL ECONOMY. 

Sixteen years ago, Professor Cairnes was guided, in 
choosing the subject for his opening lecture at University 
College, London, by seeing the signs of a belief among the 
educated public that ^^ political economy had ceased to be 
a fruitful speculation." Six years later, it was noted 
that in the speeches at the Adam Smith Centennial, cele- 
brated by the English Political Economy Club, there were 
indications that a similar sense of frustration and of lim- 
ited hope as to the future had made its way even among 
economists, and this at the traditional centre of the 
English school. And a few years more have now brought 
into full activity what is variously described as a reaction 
or a revolution, in which a determined body of dissen- 
tients from the old political economy are striving, in every 
leading country, for some sort of reorganization of the sci- 
ence and its method, upon principles rather vaguely de- 
fined, but generally declared to be in peculiar harmony 
with those which have given new life to almost every 
other branch of learned investigation. 



2 QUARTERLY JOURNAL OF ECONOMICS 

To the present writer, this movement appears to be 
no revolution, but a natural reaction, probably salutary, 
and destined to promote ultimately a rapid but still or- 
derly development of the science, upon the lines laid 
down by the great masters of what is called the deductive 
school. The real import of the movement appears to him 
to be often misconceived, partly from a negligent consider- 
ation of the scope and proper limitation of the old eco- 
nomics, and partly from failure to observe the course pur- 
sued by the greatest masters of the new. It is pro- 
posed in the present article, therefore, to review briefly the 
position held by the deductive school, to consider some of 
the shortcomings by which the way for reaction has 
been made easy, and to show what appear to be the 
characteristic tendencies and real drift of the new move- 
ment. In doing this, ground must be traversed which is 
so familiar to many readers, that nothing but the frequent 
and sometimes apparently studied neglect of its existence 
can be the writer's sufficient apology. 

Little space need be given to the formal description of 
the method used by what will be called here the deductive 
school. The authentic statement of that method is found 
in Mill's Logic^ in the concluding paper in his EsBayB on 
Some Unsettled QuestionSj and also in Cairnes's Character 
and Logical Method of Political Economy. As stated by 
these consistent followers of the Ricardian doctrine and 
conscious preservers of its continuity of development, the 
method starts from a few simple premises, collected by 
observation of the nature of man and of his environment, 
draws from these premises a series of logical conclusions, 
verifies these conclusions by fresh observation and com- 
parison, and thus ascertains certain relations of cause and 
effect, which are termed laws. As an example of the 
application of this method, to be considered a little more 
in detail. Mill's Principles of Political Economy will be 
taken, not only as the most convenient, but because it 



THE REACTION IN POLITICAL ECONOMY 8 

presents the full and rounded statement of a system of 
leading doctrines, partly thought out in the Wealth of 
Nations^ and then given in the rough, with little effort 
for orderly statement, in Ricardo's writings. 

MOl has undertaken to investigate the production and 
distribution of wealth, or, in other words, the nature and 
the results of the efforts, which it may be assumed that 
men living in civilized society will maie, to provide the 
material goods by which the satisfaction both of physical 
and of mental wants is in large measure secured. These 
efforts, he takes it for granted, will be made by prefer- 
ence along the lines of least resistance. They will be 
made also under the conditions of a natural tendency to 
increase of numbers, and of the application of labor to 
natural agents, which, when pushed beyond a certain 
point, no longer yield a proportional increase of returns. 
These data Mill finds suificient for the establishment of a 
considerable body of general propositions as to the use of 
labor and capital in production. 

But, for the investigation of the laws of distribution, it 
becomes necessary to have further data respecting the or- 
ganization and methods of the society in which the distri- 
bution takes place. It is true that " whatever mankind 
produce must be produced in the modes and under the 
conditions imposed by the constitution of external things, 
and by the inherent properties of their own bodily and 
mental structure " ; and so a great body of truths as to 
production are as applicable in a communistic Utopia as in 
the United States or Great Britain. But, in dealing with 
distribution, something must be premised as to the owner- 
ship of the natural agents and of the goods produced, and 
something also as to the freedom with which goods and 
services can be contracted for or exchanged. Mill, there- 
fore, writing with reference to modern western civiliza- 
tion and for modem readers of the western nations, 
assumes at this point, as further premises, the private 



4 QUARTERLY JOURNAL OF ECONOMICS 

ownership of property, both real and personal, and the 
existence of a free competition. These assumptions im- 
port no judgment as to the necessity or the special excel- 
lence of the conditions assumed, nor does Mill ignore 
either the possible advantages of other conditions, or the 
fact that they may exist. His assumption as to private 
property is followed by a digression as to other systems, 
applicable to property in general or to real property in 
particular, in which the opinions expressed by the writer 
as to some fundamental arrangements of the society 
around him are generally thought to be heterodox. His 
assumption as to competition is made with a full recogni- 
tion of the fact that, even where competition finds the 
fewest obstacles, its effects are often greatly modified and 
limited by the prevailing habits of the community ; and 
here again follows a digression, filling several chapters, in 
which are considered a variety of social conditions, ranging 
from slavery to cottier tenancy, under which competition 
cannot be said to act. Plainly, it is only as an observed 
fact, general enough to give shape to the mass of economic 
relations in the western nations, that the existence of 
private property is assumed ; and it is in the modern ten- 
dency of competition to overcome the resistance both of 
institutions and of custom, and to be the prevailing rule 
of dealing, that Mill finds his warrant for assuming its free 
action as a premise for reasoning upon distribution. The 
warning, however, that competition in any given case acts, 
as it were, in a resisting medium of greater or less density, 
and that conclusions based upon its possible maximum of 
effect are to be modified pro re nata^ is given by Mill, not 
once for all and to be forgotten either by writer or reader, 
but repeatedly, and is enforced at several stages of his dis- 
cussion. 

It is obvious that the process thus described is a study 
of the action of a certain force under given conditions, 
— the force being selected for consideration, not as being 



THE REACTION IN POLITICAL ECONOMY 6 

the sole spring of action, but as one generally found in 
operation, and the conditions being such as are usually 
presented by modem civilized life. The process is under- 
stood to be thus strictly limited, because of the complexity 
of the motives and external conditions by which the pro- 
duction and distribution of wealth are affected. A single 
great force is studied by itself, because this is believed to 
be a necessary preliminary to the study of its action when 
in composition with the other forces, which, although 
of secondary importance as regards the purpose in hand, 
are, nevertheless, to be finally included in any complete 
investigation ; and this isolation of the force first brought 
under examination is effected by hypothesis, because it 
cannot be effected by experiment, as in physical science. 
Even if we suppose, then, that some other force or motive 
might better have been selected as the primary object 
of study, — a supposition warranted by the conclusions 
of few economists of any school, — it would still remain 
true that the adoption of this process by Mill is a strictly 
logical and philosophical method of arriving at important 
truths affecting a great department of human activity. 
Even if other methods should be found, more rapid or 
far-reaching, this would still be a scientifically defensible 
method of investigating the action of economic motives. 

This method is said, however, to be indifferent to facts, 
and, since it proceeds upon assumed premises, to lead 
to the evolution of a system having no necessaiy relation 
to the external world. Fairly considered, the verification 
of results reached by deductive reasoning should call for 
as patient collection and as conscientious sifting of facts 
as any other use of observation. But, beyond this, it is 
from facts that the suggestion must come of all secondary 
influences or forces, which modify the action of the pri- 
mary force investigated by the economist ; and it is from 
the study of facts and of their evidence as to the condi- 
tions under which such secondary influences act, that we 



6 QUABTERLT JOURNAL OF ECONOMICS 

must proceed in determining the law of their action. 
For example, Ricardo's law of rent is a deduction from 
simple premises respecting the effort to employ capital 
with the best profit on lands differing in productiveness or 
convenience. But, in reasoning upon rent or the value of 
land in any given country, Ricardo's law is found to give 
the clew, indeed, — but a clew to be followed through spe- 
cial conditions, often of wonderful variety. To the origi- 
nally simple case of economic rent are added the modifica- 
tions arising from customs of dealing between owner and 
occupant, from the speculative holding of land, or from 
changes in its uses, or revolutions in transportation. And 
these new conditions are the necessary objects of close 
study, as supplying the material for fresh reasoning, if 
the economist, following the deductive method, seeks to 
advance his knowledge of cause and effect — that is, his 
knowledge of economic law — beyond the elementary 
state. So far from facts being a matter of indifference 
or being of only occasional use, in the deductive method, 
every one of the leading writers, Adam Smith, Malthus, 
Ricardo, the younger Mill, Senior, McCulloch, and 
Cairnes, either had special occasion for minute acquaint- 
ance with important classes of economic facts much rea- 
soned upon by him, or shows the proof of special study 
of such facts. 

The further charge, that the results arrived at by the 
deductive method have no necessary relation to the exter- 
nal world, no doubt has so much foundation as this, — that 
the truths arrived at are conditional truths. Deduced 
from certain premises by a logical process, they are unde- 
niable; but, still, they declare only the effects of causes 
acting under specified conditions. So far from being of 
universal application, they are limited by their own com- 
plete logical statement to cases where the conditions origi- 
nally premised are present, and not controlled by any 
others. It is even conceivable that no exact parallel to the 



THE REACTION IN POLITICAL ECONOMY 7 

hypothetical case should ever present itself, and afford the 
simple and perfect realization in practice of an economic 
truth. To use the familiar illustration, in every actual 
case there might be some allowance needed for perturbing 
forces or friction. Still, few will deny that truths, even 
in this abstract form, if rightly apprehended and used, 
must be of the highest service in helping to understand 
the march of human affairs. 

It is a necessary consequence of the conditional nature 
of the truths arrived at by the deductive process that 
their use as guides of conduct is subject to strict limita- 
tions. No doubt, the temptation to treat abstract truths 
as universally applicable, without qualification, has often 
proved irresistible. Still, the warning against this misuse 
of them is found in their statement. "The economist's 
conclusions," says Senior, " do not authorize him in add- 
ing a syllable of advice," — a negation which, it must be 
added, proved offensive to McCuUoch, who was little dis- 
posed to let any opportunity for profitable exhortation 
pass unimproved. Plainly, Senior, in theory as well as in 
his own public service, regarded the results of the econo- 
mist as contributory to practical judgments, but seldom 
as sufficient therefor in themselves. Taken in connection 
with the special facts which surround any question, — the 
facts, historical, social, psychological, or physical, which 
create special conditions, — economic truths are theoreti- 
cally as essential as any others for the formation of sound 
opinions, and are also, taken by themselves, as insufficient. 
This limitation of their practical effect as supplying a 
part, but only a part, of the grounds of action, is of spe- 
cial importance, of course, in their bearing upon legisla- 
tion. Economic laws, in strictness, deal with wealth; 
but the object of legislation is welfare. Or, as Adam 
Smith says, when dealing with a special case, " Defence 
is of much more importance than opulence." Without 
multiplying citations upon this point, it is enough to re- 
call Cairnes's declaration, often urged by him in different 



8 QUABTERLT JOURNAL OF ECONOMICS 

forms, that "there are few practical problems which do 
not present other aspects than the purely economical, — 
political, moral, educational, artistic aspects; and these 
may involve consequences so weighty as to turn the scale 
against purely economic solutions." 

This recognized limitation of the scope of economic con- 
clusions, as applied to practical affairs, brings to view what 
is sometimes indignantly described as the divorce of polit- 
ical economy from all ethical considerations. The econo- 
mist, it is charged, carefully ignores all higher purposes 
and duties, that he may devote his thoughts to the pur- 
suit of wealth alone. But need it be explained that, in 
this alleged divorce, the only question really at issue is 
one of classification, — a question as to the drawing of a 
line for purposes of nomenclature between several fields 
of thought, all of which, it is admitted, must be traversed 
before action can be decided upon ? When the economist 
restricts his discussion to something less than the sum of 
all the considerations of right and expediency which must 
weigh in questions of political action, his contribution 
toward the final decision may indeed be pronounced im- 
portant or the reverse, according to the judgment of the 
critic ; but there is as little ground for the moral condem- 
nation sometimes fulminated, as when one investigator 
declares his field to be physiology and not therapeutics, or 
another devotes himself to the mechanical and chemical 
properties of the rocks, and not to their geological rela- 
tions. It is only when the economist undertakes to apply 
his conclusions in disregard of other aspects of the polit- 
ical or social questions before him, and treats these ques- 
tions as problems in political economy only, that there is 
room for the reprobation of his neglect of ethical consid- 
erations ; and, in this case, he is sinning against the law 
implied in his own method.* Much confusion and mis- 

*A strikingr instance of a wide range of oonnderations taken aoconnt of 
by an eoonomist, when engaged as a legislator in the disonssion of a grave 
practical question, is presented by Mill^s speech in the House of GommonSf 17 
May, 1866, on the Tenure and ImproTement of Land (Ireland) Bill. 



THE REACTION IN POLITICAL ECONOMY & 

placed censure, however, upon other points as well as this, 
might easily be avoided, by keeping in mind more care- 
fully the necessary distinction between a science and its 
applications. 

But it is unnecessary to carry any farther this review of 
the characteristics of the deductive method. The method 
may be imperfectly applied by those who profess to use it, 
the conclusions reached by its means may be misinter- 
preted ; but it is in itself a process of careful investigation 
of causes and effects, naturally tending to the establish- 
ment of that orderly body of verified truths which is 
called a science. It is, in short, a strictly scientific method 
of approaching one great set of problems presented by the 
life of man in society. Other methods of approaching 
the same subject-matter may conceivably be used, but it 
is pure arrogance to claim for any other that it is the sci- 
entific method. 

It must be recognized as a fact, however, that political 
economy, as pursued by the deductive method, has seri- 
ously disappointed the hopes which formerly centred 
aroimd it; and this not merely because of the extrava- 
gance of the hopes, but also by reason of its own sterility 
in results. To the present writer, this state of things 
appears to be the consequence, not of some discovered 
weakness or insufficiency of the method, but of the fail- 
ure of economists to pursue the path on which they had 
entered. For this failure, the very nature of the body of 
doctrine, which was early established, may perhaps afford 
a partial explanation. It has already been said that, in 
the system of principles stated by Mill, — and this means 
in the system obscurely suggested by Ricardo, — the pri- 
mary object of study is a single great force, acting under 
given conditions. Among these conditions is a tendency 
to steady increase of resistance as society advances, result- 
ing from the laws of population and of production from 
land. What have been called the dynamics of political 



10 QUABTEBLT JOURNAL OF ECONOMICS 

economy must, therefore, with the growth of a community 
and in any given state of the arts, develop a gradually 
slackened movement, pointing to an ultimate cessation of 
advance at the point where the motive force shall be offeet 
by the increased resistance; that is, to a state of quies- 
cence, not necessarily unfortunate, but still demanding 
some new impulse as the condition either of further ad- 
vance or of decline. This is the theoretical point, — far 
off, it may be, and postponed by every fresh discovery and 
the opening of new resources, but still conceivably attain- 
able, — to which increasing numbers and declining profits 
point, as it were, by converging lines. Now, such a con- 
ception, of which traces may be found in Adam Smith, 
seems in a certain sense to finish the task of economic 
science. The movement of human society has been fore- 
cast. The goal toward which the great constant force 
tends is ascertained. What remains, it might easily be 
asked, except to elaborate the reasoning, to rivet the 
logic, and to present the elements of the calculation more 
clearly? It seems to have been some such conception as 
this, of a science completed and rounded and adequately 
describing the destined movement of every human society 
to its ultimate stage, that led Lord Sherbrooke, then Mr. 
Robert Lowe, to declare in 1876 that the work of political 
economy appeared to him to be about finished. And 
many a younger student, who has admired the logical 
strength and symmetry of the system, has wondered at 
the seeming meagreness of its content, as he has found 
himself suddenly confronted by what might be mistaken 
for the last possible deduction. 

That, dealing with such a system, economists should 
fail to push as they might their investigations into causes, 
was, no doubt, all the more natural by reason of the op- 
pressive influence of the few great names which adorned 
the deductive school during its rise. And yet the method 
by which economic science should be carried into regions 



THE REACTION IN POLITICAL ECONOMY \\ 

never penetrated by Ricardo was simple. It was only- 
necessary to draw from the actual observation of affairs 
fresh premises relating to forces of what we have called 
the secondary order. There is a pregnant sentence in 
Mill's essay on definition, declaring that, in order to make 
political economy perfect as an abstract science, *'the 
combinations of circumstances which it assumes, in order 
to trace their effects, should embody all the circumstances 
that are common to all cases whatever, and likewise all 
the circumstances that are common to any important class 
of cases." In other words, the framing and insertion of 
new premises, and the tracing of effects in the ever-in- 
creasing complexity of conditions necessary in order to 
reach all those " common to any important class of cases," 
were the natural course of development. Upon this line 
Mill entered when, reasoning from the impeded flow of 
labor and capital from one country to another, he suc- 
ceeded in adding to Ricardo's theory of international 
trade a theory of international values. Cairnes also took 
the same course, when he extended the same reasoning to 
the cases where competition is imperfect in domestic ex- 
changes, either as between different parts of the same 
country, or as between different industrial strata or occu- 
pations in a given community. In the same direction of 
fruitful development were the inquiries which Cairnes 
made at different stages of his career, as to the unequal 
measure in which the prices of different articles respond 
to a common influence, — as, «.^., to a cheapened supply 
of money, which is usually treated as affecting all alike 
and simultaneously ; and other examples could easily be 
cited from the same suggestive writer.* 

* Professor James says of the old economy that it satisfied a demand for 
"something perfect in its way. It was indeed a doeed circle^ hut it had con- 
sequently no line of advance." To go on with Professor Jameses fignrCf how- 
CTer, the deductions from simple premises being dosed, new premises afford 
the opportunity for new circles, of wider and wider sweep, limited only by the 
Tariety of human interests to be dealt with. See Science Economic DisausUm^ 
p. 42. 



12 QUARTEBLT JOURNAL OF ECONOMICS 

Plainly, the system of political economy, as elaborated 
in the earlier part of this century, gave unlimited scope 
for investigation and expansion of this kind, and for the 
discovery of what have been called " derivative laws " of 
probable interest and importance. The very fact that, as 
already noticed, the system had to assume in the first 
instance, and in order to simplify its task, that competi- 
tion acts uniformly, shows that the whole field of distribu- 
tion and exchange might be worked over, with new con- 
ditions drawn from observation, and with the promise of 
valuable results. Or, to take another region into which 
investigation by the deductive method might well have 
been carried, — that suggested by the familiar condition, 
" in a given state of the arts." The improvement of instru- 
ments, processes, and institutions, by which production is 
aided and the resistance of nature is ofi&et, is ordinarily 
treated by the economist as something fortuitous, — to be 
allowed for in a given case, no doubt, but showing no 
stated recurrence which can afford a basis for reasoning. 
Ricardo and his contemporaries naturally spent but little 
effort in speculating upon industrial and social changes, of 
which their time showed only the beginnings. Mill, writ- 
ing when the changes had become revolutionary, saw that 
they were characteristic of the century, and that no term 
could be set to their extension. Still, in the greater part 
of his treatise, he was unable to do more than refer to 
them as transitory "counteracting influences," on the 
succession of which no great amount of reasoning needs 
to rest. It is clear, however, that these influences, 
although in one sense transitory, are for our time practi- 
cally constant. Inventions, the opening of new continents, 
the abolition of time and space, the economic rejuvenation 
of countries by social and political reform, follow each other 
in a long line and in a certain orderly movement. Rea- 
son compels us to reject the vision of perpetual advance ; 
but, for these generations of the world's history at any 



THE REACTION IN POLITICAL ECONOMY 13 

rate, industrial improvement, or that which tends in the 
same direction, is not an accidental, but, as nearly as pos- 
sible, a permanent force, acting with the primary forces 
of which the economist treats, but constantly masking 
and for the time, perhaps, reversing their effects. Here, 
then, has been offered the opportunity for the economist 
to make useful application of his method, for investigating 
the movement of society in the ascending part of its orbit, 
and dealing with a mass of striking phenomena, far too 
complex for systematic study without the working hy- 
pothesis already in his hand. 

It follows, from this view of the field open to political 
economy, as defined and studied by the deductive school, 
that the science, so far from having reached the end of 
its work, has before it a task which, as Caimes says, is 
never to be completed, ^^so long as human beings continue 
to progress" ; for " the main facts of the economist's study 
— man as an industrial being, man as organized in society 
— are ever undergoing change." It follows, too, that, 
while the connection between assumed premises and the 
logical conclusion is immutable, so much of the econo- 
mist's conclusions as are based on conditions peculiar to 
his own time must lose a part of their importance as years 
pass. To this extent, we may easily agree with the prop- 
osition so ably supported by Dr. Seligman,* that "the 
economic theories of any generation must be regarded 
primarily as the outgrowth of the peculiar conditions of 
time, place, and nationality," and that " no particular set 
of tenets can arrogate to itself the claim of immutable 
truth." 

It must be added, moreover, that, if the development 
of political economy by its normal course had been 
pushed by the deductive school, the science itself would 
have been held closer to modern life and to the great 
problems which demand their answer from the modem 
world. Bagehot complains that the science "lies rather 

* Science^ 1886, p. 375. 



14 QUARTERLY JOURNAL OF ECONOMICS 

dead in the public mind," and that young men do not 
feel " that it matches with their most living ideas." This 
is a natural result of the omission to deal adequately and 
systematically with existing economic relations, in an age 
which is chiefly characterized by the multiplication and 
change of such relations; and it seems clear that the 
position which the deductive political economy held, even 
twenty years ago, i eed not have been lost, if its followers 
had pursued the natural course of widening their discus- 
sion of economic law, by drawing steadily from the fresh 
experience of the day. 

What has happened in political economy, then, is a 
singular instance of a scientific inquiry stopped short in 
its, path, it may be by the timidity — at any rate, by the 
failure — of those who had it in charge. In such a case, 
reaction is not only inevitable, but is probably the best 
hope of renewed activity and progress. Even if the reac- 
tionary movement itself should be misdirected or should 
run to excesses of its own, and should thus finally con- 
tribute nothing directly, the chances are still strong that 
it will be the stimulus of thought and of fresh investiga- 
tion ; and, from such revival, science, pursued by sound 
methods, has nothing to fear. 

The reaction in political economy has come in the rapid 
growth of what is variously known as the German, the 
inductive, or the historical school.* No one of these 
terms is well chosen. The new school can no longer be 
called German, for its influence is now so diffused as to 
be entirely independent of the place of its origin. To 
call it the inductive school, as is suggested by a natural 
antithesis, implies some radical change in methods of rea- 
soning, often vaguely asserted, but generally disappearing 

* Among the nomerons statements of the history and tendencies of the new 
school, we may refer to Professor Ingrram^s remarkable article, ** Political 
Economy," in the ninth edition of the Encyclopfledia Britannioa, and to Dr. 
Ely's study, The Past and the Present qf Political Economy, in the second series 
of Johns Hopkins Unirersity Studies. 



THE BEACTION IN POLITICAL ECONOMY 15 

in any attempt at precise analysis. Even the term " his- 
torical," which it will be convenient to use here, seems to 
imply some peculiar use of historical material for the dis- 
covery of economic truth, as distinguished from its verifi- 
cation or illustration, — a use not to be detected in the 
leading writers of the new school, whose pages bristle 
with the results of hjrpothetical reasoning. 

In fact, so far as scientific method is concerned, it may 
be stated positively, that the leading writers of the new 
school do not agree in rejecting the deductive method, nor 
in adopting any other method inconsistent with this or ulti- 
mately exclusive of it. Use of deduction in some way and 
to some extent is admitted by nearly all, and is no doubt 
logically inseparable from the process commonly called 
inductive. Dr. Ely, no moderate supporter of the histori- 
cal school, remarks that ^Hhe term inductive is to be 
applied to those writers who do not start out with all 
their premises ready made, but who include the induction 
of premises within the scope of their science, and proceed 
to use these premises deductively."* This statement 
would no doubt bring the greater part of the English 
school and their followers, including the leading writers 
upon method, within the fold of the inductive school, and 
illustrates the difficulty of drawing any line between the 
two which shall, in fact, mark any distinction except as 
to the degree in which one or another is disposed to draw 
new premises from observation .f Schmoller, indeed, be- 
lieving that the old method and its results are alike obso- 
lete, would postpone for twenty years the attempt to con- 
struct a system of principles; and this would unques- 
tionably be a logical course to pursue, if the deductive 
method is rejected for inherent unsoundness, as often 

* The Pcut and the PreMent qf Political Economy, p. 8. 

t A strikiiig iUnstratioii of the real thinnen of distiiiotion as to method 
between the two lehoola is found in President Walker's comment upon 
Caimes's statement of the dednctiTe prooess, that ** nothinfir conld be added to 
this admirable statement of the logical method of political economy aocoidingr 
to the soHndled German school." Political Economy, p. 15. 



16 QUARTERLY JOURNAL OF ECONOMICS 

seems to be supposed. But leaders like Roscher, Wagner, 
Cohn, and writers in Schonberg's Handbuchy who are rec- 
ognized as representing the historical movement, accept 
and use conclusions which there is no pretence of having 
reached save by the old process of verified deduction. 
And Wagner's reply to SchmoUer's contention that the old 
systematic dogma has been outlived is most emphatic* 
He thinks it proper to object, he tells us, — 

That this rejectioa in the lamp goes too far. The old master 
of historioal national economy in Grermany, W. Rosoher, with good 
reason, has not thus thrown the ** old dogma '' overboard. And such 
a step wonld be all the more qaestion^ble from the difficulty of 
knowing how to fill up the deficiencies ; for, except some dry critical 
observations, there is nothing at hand which can take the place of 
the '< old dogma.'' On the contrary, even the " historical national 
economists" make use, step by step, of propositions, e.g., in the 
theory of price and cost, which are either a part of the <* old dogma," 
or follow as consequences from it 

It must be added that it is also quite clear that this 
acceptance of the old results is not a mere provisional 
arrangement, — a concession made pro tempore^ as it were, 
while some new method is getting into working order. 
To take as an example the case of Wagner, such a suppo- 
sition would be inconsistent with the terms in which he 
has laid down some of the leading doctrines of the Eng- 
lish school,t and, which is more important, is also ex- 

* See the article, ** Systematische Nationaldkonomie/^ by Adolph Wagner, 
in Jahrbiicher fur NtUionaldkonomiey 1886, p. 24S. A lar^ pairt of this article 
will be found, translated, in the Appendix of this number. 

t In the article just dted, p. 246, Wagrner enumeratee, as the weightiest 
points of the old ^^ Doffmatik" the doctrine of the limitation of production 
from land and the theory of rent, the doctrine of population, the doctrine of the 
limitation of production by capital, and with it the wages-fund theory, with a 
few modifications. All these, he says, are held in substance by Cohn, Roscher, 
Schaffle, and himself. On the Malthusian doctrine, see an important note in 
Wagner's Volkswirtfuchqftslekre, i^ P* 1^* It is interesting to observe that, 
with respect to the wages-fund, Wagner's approval is given to ** Mill's older doc- 
trine," and not to the restatement made and confuted by Mill himself in 1869. 
For Roecher's position, see, inter alia, his Orundlagen der Natumaldkotwmie, 
§§ 14^-156, 242, 243. Compare also Geachichte der NationalOkonomik in Deutsck- 



THE BEACTION IN POLITICAL ECONOMY 17 

eluded by his views as to the permanent function of the 
deductive method in economic investigation. Economic 
phenomena, in his opinion, are properly to be isolated by 
a hypothetical process, in order to determine their causal 
relations. " Only thus can they be rightly grasped and 
understood, and their connections and operative influ- 
ences investigated."* Without examining more closely 
into the contrast which Wagner, as well as others, draws 
between the deductive and inductive methods, it is 
enough to note the fact that, in his judgment, both must 
be used, but in varying proportions. " The individuality 
of the particular investigator must determine that now 
one and now the other method shall be applied more or 
less than it is by other investigators. This does not in 
itself present any occasion for praise or blame, but only 
the proper or improper application of each method in the 
concrete case, and the worth or worthlessness of the re- 
sults secured by each investigator by the method which 
he uses."t Holding this broad ground as to the legiti- 
mate application of both methods, Wagner appears to view 
with equal distrust, not to say contempt, the extreme 
" -Hw^onwnu* " of some who are commonly reckoned as 
of the same school with himself, and the mere abstract 
dogmatism of some representatives of the old economics. 

iand^ pp. 652, 909. In Sohonberg^s Handbuck, it is noticeable that the article 
on the theoretically crucial subject of distribution (by Dr. Mithoff, of Dorpat) 
gires what would be called an orthodox discussion of the subject, for which 
Ricardo supplies a great part of the material. The wild talk, so often in- 
dulged in, about the ** iron law of wages," finds littie support from this writer, 
and as little from Roscher, Wagner, and Cohn. 

* *^ Die okonomisched Erscheinungen gehoren doch nur zu den socialen, sind 
aber nicht kurzweg die socialen. Sie miisMn als etwas beeonderes, wenn auch 
eng mit anderen zusammenhangendes erkannt, daher eben doch, methodo- 
logisch richtig, zunachst moglichst isoliert werden, wenn auch auf Qrund 
eines hsrpothetischen Verfahrens in Bezug auf die kausalen und kondition- 
eUen Momente, unter denen sie zu Stande kommen. Nur so konnen sie 
richtig erfasst und reratanden werden. Als dann erst ist ihre Verbindung mit 
und ihre Beeinfluasung durch andere soziale Momente zu erforschen." JcJtr- 
6iic^, 1886, p. 200. And see also p. 226. 

t Ja^fri2cA«r, 1886, p. 241. 



18 QUABTEBLT JOURNAL OF ECONOMICS 

Not by him, therefore, nor by the great writers of whom 
he may properly be taken as a leader and type, is counte- 
nance given to the pretension that a particular method in 
political economy is the scientific method, that its work 
alone is true investigation, or that upon its followers 
alone must rest the hope of the future. Some of Wag- 
ner's warnings, indeed, as to the mischief threatened by 
a spirit of exclusiveness and by " Venehulung " among 
scholars, seem to have been written with a side glance at 
tendencies visible in his own school in Germany and else- 
where. 

The "new departure" in political economy then, as 
illustrated by this typical case, consists at most in the ad- 
dition of historical inquiry to methods of investigation 
already in use. The extent of this addition, and its rela- 
tion to economic theory, ranges all the way from the co- 
pious use of history to illustrate theory — as in Roscher's 
principal treatise — to the specific investigation of eco- 
nomic history, with the light afforded by long familiarity 
with economic reasoning, of which in English a brilliant 
example is given us by Thorold Rogers. But, after all, 
the difference between the old school and the new is 
essentially a difference of emphasis or of relative weight 
given to the historical side of the subject, and not a rad- 
ical change of method in arriving at economic truths. 
The movement by which historical inquiry is thus brought 
more or less into the foreground, according to the intel- 
lectual tendencies or the opportunities of the individual, 
is, no doubt, an important reaction against the opposite 
tendency, which had stopped the progress of political econ- 
omy, as we have seen. But such a movement can become 
a revolution only when the old method and its results are 
frankly abandoned, as is demanded by Schmoller and the 
most advanced section, in the expectation of reconstruct- 
ing the whole fabric of the science by a new process. 
That this reaction has a close affinity with the intellectual 



THE REACTION IN POLITICAL ECONOMY 19 

moyement which has given new life and meaning to the 
study of history and jurisprudence is undeniable. No 
doubt, the development of the industrial life of nations 
and of their economic institutions, and the causes which, 
in all that relates to material life, make one nation a 
different historical product from another, could have no 
complete exposition without the application of modem 
methods of research and comparative study. No doubt, 
too, the exposition of these subjects in the light of ascer- 
tained economic laws must be one of the conditions of the 
advance of social science and of wise legislation. All 
this, however, is fsur from carrying with it either the nec- 
essary unsettling of established doctrines, or the abandon- 
ment of the processes by which they have been established. 
There is another important subject, however, on which 
the new school of political economy is better agreed, and 
as to which it is understood to be in strong opposition to 
the old economists. This is the vast increase of the func- 
tions and activity of the State, now called for in so many 
quarters. The old political economy, it is declared, was 
** atomistic," and dealt only with individuals : that of the 
future must be social, and must take the given society, 
not the individuals composing that society, as its unit; 
society, as a conscious whole, has duties limited only 
by the possibility of actively advancing the general well- 
being of its members ; its powers are to be adapted to this 
end, and, if adapted, are the justifiable, the most effective, 
and the necessary means of social advancement.* A great 
and not easily definable extension of the activity of gov- 
ernment is thus contemplated. That there is a ^^law of 
increasing functions of government" may be an extreme 
opinion ; f but, at any rate, the old presumption in favor 

*Thi8 demand appean in most urgent and, as it seems to the vnter, ques- 
tionable terms in Professor Jameses declaration that the State " most be oon- 
turaally interfering [to promote and create industry] ; otherwise, progress would 
stop, and retr og ressi on set in.*' Science Economic Discustiony p. 43. 

tSeeEly, ThePcat and the Present <^ Political fconomy, p. 52; and Wag- 
ner, VoUctwirtkMAqfUUhre, i., 906. 



20 QUABTERLT JOURNAL OF ECONOMICS 

of individual freedom is at least obscured,* and for lai$$ez 
/aire is to be substituted a system of direct and perva- 
sive, although carefully studied, interference. There is no 
doubt as to the loftiness of the ideal which such a system 
sets before the government of any modem State, or as to 
the qualities with which such a government must by some 
means be endowed, in order to approach this ideal. Such 
conceptions of centralized and all-sufficient power, we 
may add, are a natural effect both of imperialism and of 
democracy ; and, hence, at this juncture in the world's his- 
tory, we have a set of the tide from opposite quarters, in 
favor of extending the functions of government, quite as 
marked as the doctrinaire tendency of the last generation 
towards non-interference. Whether the present flow is 
permanent, or is destined to be followed by an ebb, it is 
at present an active influence in large sections of exist- 
ing society, and gives a marked character to the political 
economy of the new school. 

But to determine the relation of the new movement to 
the old political economy in this respect, requires some 
consideration of the place hitherto held by what is called 
the doctrine of laissezfaire. There is plainly a broad dis- 
tinction between the assumption of non-interference as 
one of the conditions of a problem on which we are rea- 
soning, and a recognized principle or maxim that no inter- 
ference with individual choice, under such circumstances, 
is justifiable or expedient. To take the case in which 
interference is most familiar, — in the reasoning upon 
international trade and international values, — the prob- 
lem is to determine the mode of action of the reciprocal 
demands made by two trading countries. The reasoning 
must of necessity — in the first instance, at any rate — sup- 
pose the exchange to be free from any influences except 
those whose effect is under investigation; namely, the 

* See Dr. Sohonberg's langnagre as to the deoisioii between ** freedom and 
nnfreedom/* Handbuch^ i., p. 48. 



THE REACTION IN POLITICAL ECONOMY 21 

desires of the countries respectively to satisfy certain 
wants with the least effort, and the means of satisfaction 
offered by their respective industrial conditions and re- 
sources. To introduce the supposition of governmental 
interference by the levying of duties on the one side or 
the other, would obviously bring in a new element, not 
necessary to the essentials of the problem, and of infinitely 
variable action and intensity. The exclusion of such a 
supposition, however, carries no implication whatever as 
to the right or expediency of interfering; nor can the 
conclusions reached, after such exclusion, afford more than 
a part of the grounds on which to rest a judgment as to 
such right or expediency. And the distinction thus to 
be made in the reasoning as to international dealings 
holds good in the discussion of other leading topics. For 
example, in the discussion of domestic supply and de- 
mand and of price, it is assumed that the dealings are free 
from control or influence by any superior power ; and, in 
discussing wages and profits, it is assumed that the com- 
petition of individual interests acts by itself. But, plainly, 
the question whether competition may be restricted by 
law or by combination, or should be free, must be an- 
swered by entirely independent reasoning. No answer is 
implied, or is approached, by that reasoning which merely 
seeks to ascertain the normal effects of the primary forces 
with which political economy has mainly occupied itself. 

It seems, then, that laiaezfaire is no part of the logical 
structure of the old economic doctrine. The most rigid 
Ricardian may accept it or reject it, and equally without 
derogation from his purity of doctrine. And, if we inquire 
into the opinions as to particular cases of governmental 
action held by some leading economists of the old school, 
we shall find among them a singular and often forgotten 
indifference to the doctrine so commonly associated with 
the system which they built up. Adam Smith, as is often 
recalled in a different connection, gave his sanction to 



22 QUABTEBLT JOURNAL OF ECONOMICS 

interference in the two test cases of the navigation acts 
and of protective duties in certain cases. Malthus sup- 
ported the protective duties on British com. Senior, deal- 
ing with such practical subjects as distress among the 
hand-loom weavers and the reform of the poor laws, 
reached conclusions and made recommendations often 
entirely inconsistent with any idea of lai$$ez /aire. Even 
McCulloch, anxious to uphold the maxim pa9 trap gour 
vemeTj still commended some legislation on factory labor, 
on the dwellings of the poor, and on employer's liability. 
Mill, first or last, suggested legislation as the cure for 
pretty nearly every evil not deemed positively incurable. 
In every one of these cases, — and the list might be extended 
easily, — it is clear that the writer had no principle, as re- 
gards governmental interference, which could prevent his 
recommending it, if he thought the object aimed at im- 
portant enough, and the prospect of success good. And 
Caimes finally went so far as to declare expressly that 
*^ the maxim of laissez /aire has no scientific basis what- 
ever, but is at best a mere handy rule of practice; useful, 
perhaps, as a reminder to statesmen on which side the 
presumption lies in questions of industrial legislation, but 
totally destitute of all scientific authority," or, as he said 
in another place, " a rule which must never for a moment 
be allowed to stand in the way of the candid consideration 
of any promising proposal of social or industrial reform." * 
It is plain, in short, that, not only logically, but accord- 
ing to the practice of leading economists,t the maxim of 
lais$ezfaire^ whatever validity we assign to it, has to do 
only with the practical applications of economic reasoning, 
and has no place as a part of the reasoning itself. It be- 
longs in the same sphere with a great variety of other con- 

*See hit enaj on " Politioal Economy and Laissez Faire,^^ Essayt in Pciiti- 
cal Economy, p. 244. . 

t Bnt, for ft highly fanoifnl statement of laissez /aire as an integral part of 
the dednotiye political economy, see M. Laveleye's article, Revue des Deux 
Mondes, July, 1875, p. 447. 



THE REACTION IN POLITICAL ECONOMY 28 

siderations, which must be weighed by the legislator and 
by the economist when he considers legislative proposi- 
tions, but which do not affect those relations of cause and 
effect known as economic laws. It is no doubt true that, 
for various reasons, the great majority of economists of the 
deductive school have in fact given so much effect to the 
maxim as to recognize a presumption in favor of non-inter- 
ference, to be set aside only for strong reasons. In the 
familiar case of protective customs duties, it is no doubt 
true that their conclusions in favor of freedom have often 
rested upon such broad ground as to account for, if not jus- 
tify, the common belief that a general doctrine of laissez 
/aire lies at the foundation of the deductive political econ- 
omy. Still, it is with perfect ease, and with no sense of 
logical inconsistency, that the German writers already no- 
ticed can adopt the most critical points of doctrine from 
the English school, and yet demand an increase of the 
State's activity, without apparent limit. 

But behind this practical tendency in favor of a more 
effective use of the authority of the State, lies what seems 
to be regarded as the chief theoretical characteristic of the 
new movement, ^^the reunion of ethics with political 
economy." The power of society is to be directed by a 
keen sense of duties, scientifically defined and recognized. 
The obligation to consider other and higher aims than the 
mere enriching of the community, the duty of treating 
the laborer as something more than a certain amount of 
energy to be made effective by the administration of cer- 
tain doses of capital, the constraint of Christian brother- 
hood, are to be enforced as a part of the teachings of po- 
litical economy. And thus, it is declared, a new life is to 
be given to a science which has hitherto regarded man as 
living by bread alone. Without wasting time upon a 
needless defence of the older political economy, against 
charges certainly not based upon any real examination of 
the uses to which economic truth has been held to be 



24 QUARTEBLT JOURNAL OF ECONOMICS 

applicable, it must be remarked that a good deal of the 
current talk of an ethical political economy appears to 
contemplate merely the infusion of emotion into econom- 
ics. But, after all, can there be any doubt that even the 
most generous emotions must find their place, not in rea- 
soning, but in the use of the results of reasoning? Is 
there any doubt that our sympathy with the aspirations 
of the working classes in their centuries of effort, or our 
zeal for whatever shall bring the masses of society into the 
full ligbt and warmth of modern civilization, is and must 
always be altogether foreign to the question as to the 
causes which determine wages ? Both in the pulpit and in 
the press, it sometimes seems to be assumed that really 
humane economists may be expected to avoid any conclu- 
sions which unpleasantly recognize the persistence of moral 
as well as physical evil. But, surely, there is no need of 
arguing that humanity and generosity, or their opposites, 
are not to be predicated of a string of syllogisms. And it 
is hardly more necessary to point out that even the en- 
lightened conscience must find its place for action after 
reason has determined the conditions under which it is 
obliged to act. In short, the question what otight to be, 
or what we wish, must be kept clear from the question 
what w, if we wish for any trustworthy answer to either. 
Bastiat is a good example of what befalls an economist 
who permits his aspirations for great ethical and social 
aims to mix with his reasoning ; and, in his case, we have, 
as the result, a set of harmonies which, it seems to be 
agreed on all sides, are admirable in every respect except 
consonance with fact. 

So far, then, as relates to the determination of economic 
truth, we may be certain that the greater weight promised 
to ethical considerations by the new school will have no 
effect. It will continue to be necessary in this as in 
every other department of investigation, that the investi- 
gator should proceed with a single eye to the truth, and 



THE REACTION IN POLITICAL ECONOMY 26 

that reason alone should guide his inquiry as to scientific 
law, — in short, that the logical process should be logical, 
leaving to the emotions, conscience, and the higher law 
their own field of activity at another stage. It was a 
shock to Mr. Carey's sensibilities to find Senior declaring 
it the economist's duty to allow ** neither sympathy with 
indigence nor disgust at profusion and avarice, neither 
reverence for existing institutions nor detestation of ex- 
isting abuses, neither love of popularity nor of paradox 
nor of system, to deter him from stating what he believes 
to be the facts, nor from drawing from those facts what 
he believes to be the legitimate conclusion." * But, doubt- 
less, even Mr. Carey would have found it difficult to pre- 
sent any other hopeful or even possible basis for scientific 
discussion. As little can the historical school, if it is to 
do any permanent work, allow either generous aspirations 
or social duties to interpose their influences, except in 
their due place. 

That such an influence has its due place before eco- 
nomic results are applied in practice, is not a matter of 
serious dispute ; f and the whole question of the relation 
of ethics to political economy resolves itself, therefore, as 
was pointed out in the earlier part of this article, into 
a bare question of classification. Shall our nomenclature 
be such as to make the term political economy include 
the ethical sphere or not? To the present writer, the 
strict limitation of the term appears to be the preferable, 
as it has been the common, usage. But whether this 
usage is retained or not can make no difference as to 
the course really to be followed. However our classifi- 
cation may divide or group the topics relating to this 

'Carey's Sodal Sdenee, i, p. 196. 

t The extreme adTocates of lau$exfcure are sometiiiies spoken of with a mb- 
plaeed note of repiobatioii, as if they denied the eristenoe of all moral eon- 
sideratioiis in oonneetion with any question tooohinff wealth; but olearlj 
there is no necessary ineonsistency between a foil recognition of the moral 
aq>eot of a snbjeot and disbelief in the right or power of goremment to act 
upon it. 



26 QUABTEBLT JOURNAL OF ECONOMICS 

order of thought, the process adopted for the elucidation 
of scientific law must of logical necessity be kept free 
from ethical considerations; and these considerations 
must, by equally stringent necessity, be taken into 
account finally among the grounds of action. "But, if 
the science is only to consider what is and not what ought 
to be," complains Laveleye, "it can neither propose nor 
pursue any ideal." To which, it must be rejoined that 
the business of a science is not to propose or pursue 
ideals, but to ascertain truths, — a work which ought not 
to be perturbed by aspirations any more than by any 
other form of prepossession. And, as truths once ascer- 
tained are to be used in due place and season, it is easy 
to see that the great aim, the advancement of society, is 
not set at risk by the strict regard paid to the definition 
of a science, as M. Laveleye seems to apprehend. 

The new movement, then, on the whole, although repre- 
sented by impassioned advocates as a revolution which 
is to sweep the ground clear and give the world a new 
political economy, is, in fact, a development of the ex- 
isting science, under the influence of a strong reaction 
against tendencies which had prematurely checked its 
advance. So fetr as this development is historical in char- 
acter, it means a fresh impulse given to the study of the 
social fabric, past and present, in its origin and its results, 
but not at present the adoption of any new method of 
investigation, even if, in dealing with this subject-matter, 
any real change of method is practicable, — a point which 
may at least be held in reserve until further proof. And, 
so far as the new development is social or ethical, it means 
an increase of weight given to obligations which have 
been ignored oftener than denied, and the consideration 
of which can neither supersede nor control any reasoning, 
deserving the name of scientific, upon economic questions. 
The importance of the movement, even in this view of its 
scope, as tending to direct the attention of the economic 



THE REACTION IN POLITICAL ECONOMY 27 

world, for the present generation at least, to new problems, 
and perhaps to revive its interest in topics too easily neg- 
lected, can hardly be overrated. But this new direction 
of thought is, after all, not the absolute break of continuity 
so often proclaimed. 

It is to be said, too, that such a movement as the present 
need not be regarded with a jealous eye, by those of us 
who still believe that the method of Ricardo and Mill and 
Caimes is the best and even the only sure method, for 
threading the way through the mazes of conflicting mo- 
tives which underlie economic phenomena. Even the 
excessive cultivation of fields heretofore neglected must 
be viewed by the adherents of the deductive school as 
not only natural, but hopeful. They will not deny that 
the current political economy needs to be brought into 
closer relation to the life of to-day; and, whatever else 
the reaction may succeed or fail in doing, it will cer- 
tainly compel all economists to carry their researches 
deeper into actual phenomena. Moreover, so long as 
the investigation of truth, by whatever means, is the 
guiding purpose of the movement, its result must be the 
accumulation of material, rich and varied, to be brought 
ultimately into the service of science. And, even if dog- 
matism and the growing arrogance of a school secure the 
sway and wreck the possible career of the new economics, 
the old will at least have undergone a salutary discipline 
and received a new impulse. 

ChABLES F. DUNBAE. 



PRIVATE MONOPOLIES AND PUBLIC RIGHTS. 

Thebb is nothing which the average citizen distrusts 
and fears so much as the power of great corporations. 
Nor is this distrust without foundation. Such corpora- 
tions, in many instances, have a virtual monopoly in their 
own line of business, which is at variance with all our 
theories of industrial freedom. Even where competition 
is physically possible, it is often practically impossible. 
The large concern has such an advantage over the smaller 
ones that a competitive strife, however desperate, can 
only result in a combination more extensive than ever. 

The attempts to remedy this state of things by direct 
legislation are usually of little avail. Where large man- 
agement is more economical and productive than small 
management, we shall find large concerns or none at all. 
Business, even in those lines where there is partial mo- 
nopoly, is carried on with too narrow a margin of profit 
to endure any but the most economical methods. To 
control the abuses without destroying the industries is 
a matter of the utmost difficulty. 

Fortunately, we are not quite without hints as to the 
direction which such control is likely to take. These 
hints are to be derived from a study of the history of 
transportation service and transportation law. It was here 
that the monopoly of large concerns developed itself most 
sharply ; it was here that legislators, after unsuccessfully 
fighting the tendency, first came to recognize it as inevi- 
table ; it is here that there have been the most costly, but 
at the same time most fruitful, experiments in legislative 
control. These things were well worth studying, when 
railroad history was supposed to stand by itself and to 
involve an exception to the general laws of trade ; but 



PBIVATE MONOPOLIES AND PUBLIC BIGHTS 29 

they have become far more important, now that those 
tendencies which are most clearly marked in the case 
of railroads are beginning to act with increasing vigor 
in other lines of business. The history of transportation 
law has constituted an exception to the general laws of 
the past, but it may not improbably constitute an indica- 
tion as to the general laws of the future. 

The earlier traditions of transportation law were quite 
clear. The highway and the carrier were sharply distin- 
guished. The highway, whether road or river, would 
have constituted a natural monopoly, if it had been made 
the subject of private ownership. This was avoided by 
not allowing it to become private property at all, but 
keeping it under the control of public authorities. On 
the other hand, the business of the carrier was not, in 
times past, easily monopolized. Where each man could 
place his own wagon on the road or his own boat on the 
water, competition was the simplest and most natural 
thing in the world, and could generally be relied upon 
as the most effective means to secure fair and reasonable 
charges. Free use of public highways and free competi- 
tion of private carriers were the principles on which the 
traditional law was based. 

The theory was simple ; and, as long as the facts were 
equally simple, it served its purpose extremely well. 
Unfortunately, the facts outgrew the theory. 

In the first place, there were some departments of 
transportation, where an extensive and highly organized 
service was a necessity, and where free competition of 
different carriers was practically impossible. The postal 
service was the earliest instance. Efficient letter carriage 
could only be secured by a monopoly. This was gen- 
erally recognized at |least two hundred years ago. In 
France, it was directly managed by the government. In 
Germany and even in England, it was for some time 
left in private hands ; but, in all cases, organized monop- 



80 QUABTEBLT JOURNAL OF ECONOMICS 

0I7 was substituted for the traditional system of free 
competition. And the same thing occurred in some de- 
partments of foreign trade. The East India merchant 
shipping required strong organization, beyond the reach 
of any individual trader. The result was that monopolies 
of the most stringent character were granted, both in 
Holland and in England, with privileges so strong that 
they continued in force long after the necessity for them 
had ceased. 

In the second place, the demand for better highways 
made them so expensive that it was impossible to keep 
up the old theory of free public use. When the highway 
was mainly natural, and could be constructed and main- 
tained without much expense, this was the proper theory ; 
but, when much money had to be spent for turnpikes, 
canals, or wharves, it brought an intolerable burden upon 
the tax-payers, and one which they were quite unwilling 
to bear. France, indeed, created a national system of 
roads and canals at State expense, but it gave rise to 
deep-seated popular grievances; while England and 
America were forced to depend mainly upon private 
enterprise for the necessary improvements. Each im- 
provement in transportation rendered a large permanent 
investment of capital necessary. Every such investment 
afforded private capital the chance to acquire new rights 
over the highway. The governments in England and 
America, as a rule, dared neither to lead nor to resist the 
march of improvement. They were obliged to entrust it 
to private enterprise, as the only available middle course. 

Finally, the invention of the railroad and the telegraph 
subjected the legal theory to a far greater strain than 
ever. In each of these cases, the necessity for an organ- 
ized service was obvious. In each of them, a large per- 
manent investment was required. But the main point 
was that, both in railroad and telegraph service, it was an 
obvious advantage, if not a necessity, to have the line and 



PBIVATE MONOPOLIES AND PUBLIC BIGHTS 81 

the business owned and controlled by the same head. 
The law was thus brought face to face with a most per- 
plexing problem. It had hitherto regarded the highway 
and the carrier as at least theoretically distinct, and sub- 
ject to diametrically opposite principles. The highway 
had been public, the carrier's business private. The 
former was a natural monopoly: the latter was legaUy 
subject to free competition. No middle ground seemed 
to exist. But the railroad was at once highway and 
carrier ; and hence arose a serious conflict, whose succes- 
sive phases mark distinct periods in the history of railroad 
legislation. 

There are four different ways in which attempts have 
been made to solve the difficulty : — 

1. By keeping the highway and the carrier distinct, in 
spite of physical and industrial difficulties. 

2. By assimilating the legal position of the carrier to 
that of the highway, giving a monopoly of railroad busi- 
ness to the State. 

3. By assimilating the legal position of the highway to 
that of the carrier, trusting to the free competition of 
parallel railroads in private hands. 

4. By abandoning some of the legal traditions alto- 
gether, admitting the failure of competition and the 
necessity of monopoly in certain cases, but reserving to 
the community important rights of control over such 
monopolies. 

The first of these plans was most resolutely tried in 
England. It was so thoroughly in harmony with com- 
mon law traditions that the English were loath to relin- 
quish it. The early charters were framed on the supposi- 
tion that it would be carried out as a matter of course. 
They provided accurately the schedule of rates of toU at 
which outsiders would be allowed to use the line. The first 
parliamentary investigations carefully considered why the 
system did not work, and whether it could not be made 



32 QUARTEBLT JOURNAL OF ECONOMICS 

to work. As late as 1858 there was an obvious desire to 
see competition of different carriers on the same line. In 
the testimony of 1866-67, it is spoken of with obvious 
regret as a thing which would be desirable, had not 
experience proved its impossibility. In 1872, it is looked 
at as a mere matter of past history. In the recent investi- 
gations of 1881-82, it was hardly mentioned. 

The attempt to secure competition of different carriers 
on the same line was not confined to England. The idea 
had found expression in some of the earliest Prussian 
charters, and it has never been quite without advocates 
in Germany and Austria. Twelve years ago, just as it 
had been thoroughly abandoned in England, it began to 
be most actively discussed in Germany. At three succes- 
sive congresses of German economists, it was the all- 
absorbing topic. Books were written to prove it practi- 
cable as well as desirable, but little or nothing was 
actually accomplished. Hardly has this discussion come 
to an end, when the subject is reopened in the United 
States by the appearance of Mr. Hudson's work, 2%€ 
RailwayB and the Mepublicy in which this plan is warmly 
advocated. But the fact that it has been so much dis- 
cussed and so much desired makes its failure all the more 
conspicuous. The same reason which had made it fail in 
the past is sure to make it fail in the future. The rail- 
roads themselves can always carry much cheaper than can 
be done by any outside party. They can profitably carry 
a great many goods at rates which seem to be less than 
cost. The cost of railroad service consists of two ele- 
ments : fixed charges, such as interest and maintenance, 
on the one hand; and transportation expenses, in the 
narrower sense, on the other hand. The theory of tolls 
contemplates that the toll should cover the fixed charges, 
and that the carrier's rate should pay the transportation 
expenses. The carriers, as distinct from the railroad com- 
pany, can therefore charge no rate which will not cover 



PRIVATE MONOPOLIES AND PUBLIC RIGHTS 88 

transportation expenses plu9 a fixed toll for the use of the 
track. But the railroad itself can go much lower than 
this. To secure traffic which it could not otherwise get, 
it can forego a part of its toll. Anything above mere 
transportation expenses is so much clear profit for the 
railroad, if it thereby secures an extension of its business 
which cannot be obtained on any other terms. This is 
the chief motive which has asked to secure the great re- 
duction in the rates in recent years. Badly as it may 
work in individual cases, its general effect is good. It 
has made long distance transportation of cheap goods 
possible. A fixed toll would raise rates so high as to stop 
a large part of the existing traffic in coal, in lumber, and 
even in wheat. Nor can the difficulty be met by allowing 
a periodical revision of tolls by the legislature. No man 
would wish to invest money in railroad building, subject 
to such liabilities. No existing railroad would care to 
extend its business, when it would thus lose all fruit from 
its gains. Railroad enterprise, both in construction and 
in management, would be almost destroyed. 

When the union of road and carrier was found to be 
inevitable, the first impulse of most governments was to 
unite the two under the hands of the State. Financial or 
industrial reasons hastened this consummation in some 
places, and retarded it in others ; but the final result in 
a large part of the world was State ownership. The rail- 
road (and the telegraph) was brought into as complete 
public ownership as the old roads or canals. Only, 
the tax for their maintenance was drawn largely from the 
shippers of goods rather than the general public. Of the 
effects of this system of public monopoly, we have no room 
to speak in detail. 

In England and the United^ States, on the contrary, 
precisely the opposite course was pursued. Instead of 
assimilating the position of the carrier|to that of the high- 
way, they tried to assimilate the highway to the carrier. 



84 QUABTEBLT JOURNAL OF ECONOMICS 

Competing carriers on the same highway were impossible ; 
then let us have competing carriers on competing high- 
ways. Such was the idea which lay at the foundation of 
the parallel railroad charters of England and of the gen- 
eral laws which encouraged indiscriminate railroad build- 
ing in America. Competition was supposed to be so good 
a thing that the more you had of it, the better. Unfortu- 
nately, the facts did not always confirm this view. The 
English faith in it was shaken by the crisis of 1847. The 
American belief in it lasted longer; but the successive 
experiences of 1867-69, 1878-77, and 1884-86, have at 
last convinced the public that railroad competition is not 
an unmixed good, and that there are a great many things 
which it cannot be trusted to do. 

The system of competing highways is subject to at least 
three distinct drawbacks : — 

1. There are a great many cases where such competition 
is physically impossible. The route first laid out is often 
distinctly the best, and sometimes the only available one. 
Even where a parallel road can actually be built, it finds 
it hard to secure terminal facilities which will place it on 
a level with its rival. 

2. The building of a parallel road involves waste to the 
investor. There are very few roads which could not ad- 
vantageously handle a much larger traffic than they at 
present enjoy. If you attempt to do this on two lines 
instead of one, it is just so much waste. This considera- 
tion is so strong that points with moderate traffic can 
hardly expect to have more than one road, so that the 
theory of competing highways is never fully realized in 
practice. 

8. In those cases where it is realized, the loss to the 
investor is not compensated by any corresponding gain to 
the shipper, — rather the reverse. 

Railroad competition, where it acts at all, acts with 
such intensity as to bring rates down far below cost of 



PRIVATE MONOPOLIES AND PUBLIC BIGHTS 85 

servioe. Nor is this due to any special recklessness on 
the part of railroad managers. It is due to the operation 
of general economic laws. Fixed charges must be disre- 
garded in railroad competition, for exactly the same rea- 
son that rent cannot be taken into account in fixing the 
price of produce. If a farmer is threatened with the loss 
of his market, it is better for him to sell his wheat at the 
very slightest margin above actual cost of growing the 
crop, even if it will not pay its share of the rent or inter- 
est charges on his land. And, in like manner, if a rail- 
road is threatened with the loss of part of its traffic, it is 
better to reduce rates almost to the level of operating 
expenses, even if this leaves nothing for interest and 
repairs. 

So far, the two cases are alike. But railroad competi- 
tion is more disastrous than agricultural competition, 
because it is not subject to the law of the diminishing 
return. That is, if either railroad increases its traffic at 
the expense of the other, it often handles the added traffic 
at better and better advantage the more it gets. There 
is thus no direct limit to this cut-throat competition. 
Even where it involves the most serious losses to both 
parties, it will involve a worse loss for either of them to 
stop, while the other goes on; for most of the fixed 
charges will continue, while the other road gets the whole 
competitive business. It is an established fact that, where 
railroad competition is really active, it leaves nothing to 
pay fixed charges. 

If such competition acts at comparatively few points, as 
is usually the case, the fixed charges will be paid from 
local traffic which does not have the benefit of competi- 
tion. If there is competition all along the line, as in the 
case of the New York Central and West Shore Railroads, 
there will be little or nothing to pay fixed charges. This 
means ruin to the investor. If it exists on a large scale, 
it means a commercial crisis, like that of 1884 in America, 



86 QUABTEBLT JOURNAL OF ECONOMICS 

or that of 1847 in England. Now, such a state of things 
cannot continue indefinitely. It must end in consolida- 
tion, followed by a restoration of prices to a non-competi- 
tive figure. 

Under these circumstances, the shippers, as a body, 
receive little or no advantage to ofiEset the loss which 
competition causes to the investor. If it acts at a few 
points only, it causes enormous local differences or dis- 
criminations. If it acts at all points, it produces a scale 
of charges too low to be permanent, thus involving great 
fluctuations from one month to another. Now, it is well 
established that equality and steadiness of rates are more 
important to the business community than mere low aver- 
age charges. The attempt to secure the latter by compe- 
tition renders the attainment of the former impossible. 
The benefits of competition too often accrue to a few 
speculators, who, in the general fluctuations, manage to 
secure the very lowest rates, and leave less shrewd or 
unscrupulous rivals relatively the worst off, even when 
their actual freight charges are lowest. 

The attempt to assimilate the highway to the position 
of the carrier thus proved a distinct failure. Competition 
between different highways could not be relied on to pre- 
vent abuses. In many cases, it was impossible. In 
others, it was so ruinous as to be inevitably followed by 
consolidation. In others, it actually fostered abuses 
instead of checking them. It was not without its advan- 
tages. It had produced rapid development and low aver- 
age charges. But it had not done the work of protecting 
the individual shipper. 

And it was precisely on this ground that a new princi- 
ple of regulation grew up. The decision of the United 
States Supreme Court in the Granger Cases was to some 
extent a breach with the older traditions. It was justified 
by the logic of facts rather than by legal precedents. 
Railroads and elevators had ceased to be in fact what they 



PRIVATE MONOPOLIES AND PUBLIC BIGHTS 37 

were in theory. In theory, they were regulated by free 
competition. In fact, they were monopolies. And this 
fact created a necessity for regulation, which made wel- 
come the explicit statement of the right to regulate, in 
spite of the somewhat vague terms in which that right 
was defined and justified. 

The establishment of the right to regulate is a very 
different thing from the establishment of the proper 
method of regulation. The latter can only be tested by 
experiment. The decision of the court might readily 
open the way for methods which should prove disastrous 
to all concerned. In fact, the system of direct regulation 
of monopoly charges, which gave rise to the Granger 
Cases themselves, proved so bad in its first consequences 
that it was being gradually abandoned at the very moment 
when the right to apply it was put beyond aU question by 
the decision quoted. 

It is extremely difficult for a State authority to attempt 
to fix rates to advantage. If they are placed too high, 
they are inoperative. If they are placed too low, they 
check railroad development in such a way as to do un- 
bounded harm. This was the trouble with the Granger 
legislation, and constituted the reason why the men who 
had passed it, in so many cases, found themselves forced 
to repeal it. Experience proves that even on a State- 
owned railroad much latitude must be allowed to rail- 
road managers. The Prussian government, after years 
of experience, has established a careful tariff of charges; 
yet three-fifths of the traffic of these State roads them- 
selves is carried at rates different from what the tariff 
prescribes. 

The necessity of competing in the markets of the world 
controls the general scale of railroad charges far more 
efficiently than any schedule can do. The evil to be 
guarded against is the specific abuses of power against a 
greater or lesser number of individual shippers. And this 



( 



88 QUABTEBLY JOUBNAL OF ECONOMICS 

is best done by enforcing equality of treatment, leaving 
the absolute charge at the discretion of the railroad man- 
ager. How far this enforced equality should be carried is 
a practical question which has not yet been settled. It 
unquestionably should be made to prevent all merely per- 
Bonai discrimination ; that is to say, equality of treatment 
should be secured to all persons under substantially like 
circumstances. But how far it should be made to prevent 
local differences or inequalities of classification can only 
be decided by long experience. 

It is a good sign that recent laws and decisions have 
brought the principle of equality more and more sharply 
into the foreground. But there is another means of rail- 
road regulation which must go hand in hand with it, and 
which, in its practical results, is even more important, — 
publicity of railroad management. The worst abuses of 
railroad power have been perpetrated for the benefit of 
inside rings, and have been no less injurious to the stock- 
holders than to the general public. It is rare that the 
permanent interests of the investors seriously diverge 
from those of the shippers. The investor wants good 
dividends; but he also wants to have business flourish 
along his line, which can only be secured by giving rea- 
sonable rates. The shipper wants low rates ; but he also 
wants the railroad to increase its facilities, and this is 
only possible when it pays to do so. In the long run, 
these two things agree pretty well ; but where the road is 
under the management of an inside ring, whose interest is 
distinct from that of the stockholders and shippers both, 
the permanent interests are almost always sacrificed. 
Nothing prevents this sacrifice so well as enforced public- 
ity of management. 

And, on the other hand, nothing so surely sacrifices the 
permanent interests of all parties as does the spasmodic 
attempt to enforce competition. Acting in the irregular 
manner already noticed, its aid is almost always greatest 



PBIVATE MONOPOLIES AND PUBLIC RIGHTS 89 

to the strongest shipper. It produces fluctuations of 
which inside rings are in the best position to take advan- 
tage. It is far oftener used as a means of speculation 
than of legitimate business. As long as this was the 
main principle relied on for the control of railroad 
charges, there was some plausibility in enforcing it. But 
to-day, when the fact of monopoly is recognized, we may 
as well get such advantages as it affords. A strong road 
or combination of roads is, in every respect, better to deal 
with than a weak one. It is easier to hold it responsible. 
It is far easier to make it pursue a far-sighted policy. 
The management of a bankrupt road has no permanent 
interests. It lives for the day only. By encouraging the 
competition of bankrupt roads, you simply pull down the 
strong roads, and force them also to live for the day, and 
sacrifice their permanent interests. It is a case where the 
policy of the whole body of competitors is regulated by 
the practice of the worst individual. Here, again, the 
change in the attitude of some of the courts is an encour- 
aging sign. We have been late in recognizing the facts. 
France, Germany, and even England have been years in 
advance of us in this matter. But, at last, we are coming 
to see that, where responsibility and equality of treatment 
can only be secured by combination, regulated combina- 
tion is better than irresponsible competition. 

Such is the direction which railroad regulation in the 
United States is to-day taking. But the significance of 
these facts extends beyond the limits of railroad business. 
It is by no means improbable that this represents the 
direction which all industrial legislation must take in the 
immediate future. 

The irregular and imperfect action of competition is 
most marked in the case of railroads, but the same gen- 
eral state of things exists in almost all industries with 
large permanent investment. In any such industry, there 
are certain general expenses which remain, to some extent. 



40 QUABTERLT JOURNAL OF ECONOMICS 

the same, whether the business increases or diminishes. 
When a factory is well established, the cost of extending 
its production is comparatively slight; and it is worth 
while to make very low prices for the sake of securing 
additional markets. Such an industry is subject to what 
Prof. H. C. Adams calls the law of the increasing return, 
which gives the large producer the advantage. A large 
concern striving to extend its business can do so more 
economically than a producer who would like to go into 
business in a small way. The large establishment can 
crush out the small ones. Where two large concerns are 
both striving to extend their business, it may result in 
temporarily forcing prices down below cost. As in a 
railroad war, prices are determined without reference to 
fixed charges. The question is not at what rate it will 
pay to do your own business, but at what rate it will pay 
to steal another's business. But, with factories as well as 
with railroads, such competition ends in combination. It 
cannot exist indefinitely without ruin to the investor. 
Thus we have enormous fluctuations in price, to which we 
have become so accustomed that we consider them part 
of the law of nature. First, a period of commercial de- 
pression, when prices are so low as not to pay interest on 
the investment; then, a period where they are fixed at 
monopoly rates, which tempt large investments of new 
capital, and lead to a new period of cut-throat competi- 
tion. But, with each change, the chance for the smaU in- 
dependent business man is less. If the competition does 
not crush him down, the combination swallows him up. 

This monopoly, due to the advantages of large organi- 
zations of capital, is characteristic of the present day. 
Legal monopolies, created by law, are largely a thing of 
the past. Natural monopolies, like that of land owner- 
ship, are still important ; but they are not the matter of 
supreme importance in productive industry any more 
than in transportation. The writings of Henry George 



PBIVATE MONOPOLIES AND PUBLIC BIGHTS 41 

have led to an exaggerated estimate of the practical ef- 
fects of land monopoly. In a recent discussion between 
Mr. George and Mr. Hyndman, the leader of the English 
socialists, the latter showed with great force how little 
change would be actually made by the nationalization of 
the land, if capital organization remained as it now is* 
The chance given to the small producer by access to the 
land would be very slight, so long as the possession of 
large capital gave a chance for so much more economical 
use of power as to constitute a de facto monopoly. 

George's theory of public land and private capital 
corresponds closely to the old transportation theory of 
public highways and private carriers. And Hyndman 
has shown that this is no more possible in highly organ- 
ized productive industry than in highly organized trans- 
portation; that the control of the capital gives virtual 
control of the business, howsoever the land is held. 
While George chooses the first of our four alternatives, 
Hyndman chooses the second, and would have consistent 
socialism in production as well as transportation. 

The majority of men in all ranks are stiU trying to 
carry out the third alternative, — private ownership in 
land and capital, and free competition at the same time ; 
but they are gradually learning that in those lines of 
industry which involve large capital, under concentrated 
management, the old theory of free competition is as 
untenable as it was in the case of railroads. That a great 
deal of our productive industry is thus monopolized 
hardly admits of doubt. The cases of the Standard Oil 
Company and of the various coal combinations are noto- 
rious. The history of the steel rail business, though less 
widely known, is in some respects even more striking. 
But there is no need of multiplying individual instances. 
Mr. H. D. Lloyd has filled page after page with their 
enumeration, and yet has by no means exhausted the 
subject for America ; while, in Europe, such combinations 



42 QUARTEBLY JOUBNAL OF ECONOMICS 

have even assumed international importance. The diflB- 
culty is not so much to find where combination exists 
as where it does not exist. 

The monopoly due to concentration of manufacturing 
capital is most strongly felt by the employes. The rela- 
tion of a factory to its employes is in many respects 
closely parallel with that of a railroad to its shippers. It 
is powerless against them as a body: it is aU-powerful 
against them individually. The laws regulating contracts 
between manufacturers and employes have developed on 
the same general lines and for the same general reasons 
as the laws regulating contracts between carriers and 
shippers. Organizations of laborers and organizations of 
shippers have many points in common. The Granger 
movement finds its counterpart industrially and politi- 
cally in the Knights of Labor. The movement for fac- 
tory regulation to-day is the natural successor to the 
movement for railroad regulation fifteen years ago. 

The significance of the Granger Cases in this connec- 
tion is that they confer the right to regulate any such 
monopoly, if it can be shown to be a matter of " public 
use." In the upper Mississippi Valley, the railroads had 
had no legal monopoly and little natural monopoly. 
They had received certain privileges, under the genend 
laws of the State ; but it was not on those privileges that 
the right of railroad regulation was based. It was be- 
cause the railroad was a monopoly, in the same way that 
many factories are now monopolies, that the demand for 
regulation arose. This demand having once arisen, a 
principle was found to justify it, which is broad enough 
to cover a great many cases not originally foreseen. The 
definition of a public use was extremely vague ; but the 
monopoly character, due to the organization of modern 
industry, seems to have been the distinguishing ground 
on which the court applied the term to the business of 
the Chicago elevators. In the only place in the whole 



PBIVATE MONOPOLIES AND PUBLIC BIGHTS 48 

decision where there is anything like an attempt to de- 
scribe in general terms cases where public use exists, 
they are spoken of as cases of " virtual monopoly." And, 
should a serious exigency arise, it is not likely that the 
wide door here thrown open would remain unused. 

In this matter, as in the matter of railroads, the exist- 
ence of the right to regulate by no means settles the 
question. What methods of regulation may be possible or 
desirable? The socialists, on the mere statement of the 
case, demand State ownership; but, to any one who is 
familiar with the abuses of State-owned monopolies, there 
is not even a prima faeie ground for such an inference. 
Nor have we many data for determining what form of 
positive action is likely to be most successful. The lesson 
which we can draw from this analogy between factories 
and railroads is largely a negative one. It simply proves 
the weakness of the position of those who insist that such 
large producers have no public responsibilities, and are 
subject to no public regulation, except by the law of 
competition. 

There is a danger to the community involved in the 
position taken by some of the manufacturers on this point. 
They claim the right to manage their own private business 
in their own way, and resent any efforts to secure public- 
ity as an unwarrantable interference. Yet serious dangers 
arise to the community from the exaggerated importance 
of business secrets. There is no doubt that the great 
majority of people believe in the existence of a large fund 
of manufacturers' profits. These think that wages are 
unnecessarily low, that there is an inmiense surplus di- 
vided among the stockholders, which would put the wage- 
earners on a totally different level, if it were divided 
among them. Now, it is easy to show that this is not 
true in the aggregate. But it is hard to make the work- 
men believe it, as long as the firm for which they work 
practises secrecy in this respect. 



44 QUABTERLT JOURNAL OF ECONOMICS 

There was a time when railroads^resented any attempt 
to secure publicity as strenuously as manufacturing cor- 
porations would to-day. Yet, when such publicity was 
enforced, it was found to act as a protection instead of a 
harm to the legitimate interests of the property. The 
combination of secrecy and irresponsibility with limited 
liability opened the way for firauds upon the property 
owners quite as much as upon the general public. It may 
be that the history of the railroad business will repeat 
itself in other industries. If regulation by public opinion 
and carefully enforced responsibility is resisted, there 
is danger of something far more stringent and sweeping. 
A monopoly, whatever its legal or industrial position, is 
in danger from sudden movements of public feeling. If it 
is afraid of enlightening public opinion on what it does, it 
may well be much more afraid of the risk of facing an out- 
break of unenlightened public sentiment. 

The history of railroad legislation in the United States 
presents three successive phases. First, an attempt to 
enforce really active competition and discourage consoli- 
dation. This ended in failure. Second, an attempt on 
the part of the shippers to dictate terms to the railroad. 
This ended in a failure much more disastrous than the 
first. Third, a scheme of regulation under which the 
necessity for combination was at least tacitly admitted, 
but where the combinations were held to a larger degree 
of publicity and responsibility than before. In factory 
laws, we have not yet advanced so far. It is by no means 
certain that we shall ever advance so far. But we are 
past the illusions of the first stage, and labor organizar 
tion has brought us face to face with the dangers of the 
second stage. We cannot stay where we are. It is not 
likely that we shall take a step backward. It may well 
be the case that the history of railroad regulation shows 
us the direction of our next step forward. 

Akthub T. Hadlby. 



SILVER BEFORE CONGRESS IN 1886. 

The Silver Question before the Congress of the United 
States in 1886 can be no more than one brief scene in the 
drama or chapter in the history of monetary policy, and 
of course can be fully and clearly understood only in its 
relation to past and future. Having the near future nec- 
essarily in view, — for the silver question is still before 
Congress in 1886, — andj[desiring to contribute, so far as 
my force may go, to that grasp of the controlling points 
of the situation which is needed for speedy action, as well 
as to satisfy a more scientific interest, I have hoped to 
attain each of these ends in some useful measure by limit- 
ing my survey to the dominant aspects of the question, 
and by offering both retrospect and forecast in connection 
with the nearer field of view, all of course in outline. 

This course is open to the objection that the demands 
made upon the reader are both extensive and vague. I 
must place much reliance on the reader's familiarity with 
monetary literature and monetary history; and, in some 
instances, this trust must cover wide fields in a region 
which enjoys a not undeserved reputation for impene- 
trability, a wilderness of the Inferno^ 

<* Selya selvAggU ed aspra e forte," 

which lacks its poet, if not its'seer. 

I know not how to meet this difficulty except by stat- 
ing that what is said in the following pages I am ** ready 
to make appear," and to that end, in any practicable 
manner, am at the reader's service. 

I. 

With the cessation of purchase of bullion for coinage 
in France, in 1876, — a countermove to the attempted 



46 QUABTSBLY JOUBNAL OF ECONOMICS 

sale of Germany's stock of silver coin, — the operation of 
the " bimetallic union " was definitely suspended, and the 
occidental world stood ranged side by side with England 
in monetary policy. But the situation was necessarily a 
provisional one. What was to be done next? With tins 
query, the world found itself face to face with the silver 
question. 

To one who will take the trouble to engage in strenu- 
ous meditation on the relation of the precious metals 
to the economic life of modem man, the peculiar char- 
acter of the outlawry of silver will, I think, quite clearly 
reveal itself. With his infinity of needs and desires, 
whose satisfactions must be subdivided and localized so 
as to attend his course in space and time, man becomes 
more and more an exchanging animal, and, hence, more 
and more an appraising animal. From a breakfast to 
an earthquake, he sees things through the medium of 
price; and for his economic life, from birth to death, 
money, accounts, payments, and valuations, binding to- 
gether future and past, are like earth and air for physical 
life. By force of man's law, silver and gold — metals 
rare in the earth's crust, but in man's hands abundant, 
in comparison, beyond all other conmiodities, being the 
cumulative heritage of ages — were intrinsic money; and 
they alone held that place. The privilege thus accorded 
was subject to some local restrictions of custom or law, 
but all these were of trivial effect. There was just so 
much of this metal in men's hands, and this stock was 
slowly being re-enforced from the mines by a minute per- 
centage above the minute loss always going on. Every 
pound of that metal was in use, and, in general, for the 
same purposes, in one way or another ; and either metal 
was potentially exchangeable for the other at a stable 
(though localized) ratio. Each, therefore, supported the 
other in its use and place, somewhat as one-half of the 
current of a river supports the other half ; and the entire 



SILVER BEFORE CONOBESS 47 

fabric of human accounting, of the appraisements of the 
round world and of all that therein is, existed as it. did 
through its relation to that stock of silver and gold stand- 
ing at that level and slowly increasing. 

Upon this peaceful scene came arbitrary laws and 
decrees of outlawry directed against one of these metals. 

What was their effect? 

The chief monetary features of the period, extending 
from Germany's retirement of silver coin (1878-74) to 
the present, are, in brief, as follows (I refer mainly to 
the occidental world) : — 

A check of the normal increment of the money stock. 

A divergence from the traditional par between silver 
and gold. 

Uncertainty of their ever finding a new and permanent 
parity. 

The degradation of a thousand million dollars worth 
(in round numbers) of full legal-tender silver coin from 
the position of international to that of local money. 

The derangement of the calculations of contracts and 
trade and investment between gold-using and silver-using 
countries. 

A gradual subsidence of average prices, which still sees 
no halting place before it. 

All of which, being interpreted, means an unending 
succession of slight shocks of earthquake to the terrestrial 
structure of business, varying of course in practical effect 
in different places and times, not so much the cheapness 
of everything as the depreciation of everything, much 
idleness, much unprofitable work, — in a word, chronic 
"hard times." 

That these events are, in controlling measure, conse- 
quences of the breaking up of the bimetallic union of 
the past, is obvious. How, indeed, could it fail to pro- 
duce such results? 

The event was unique in its suicidal effect and in the 



48 QUABTEBLT JOUBNAL OF ECONOMICS 

character of the actors. In each important country, the 
evil, the danger, was, in a limited sense, self-made, be- 
cause in each country either the law or public opinion 
had contributed its quota to an effect growing out of a 
totality of laws recommended by a general public opinion. 
This phenomenon — worthy, one would be inclined to say, 
to be the product of another age than this, the latest — 
bears, however, the marks of "civilization," its aims being 
quite prosaic and practical, material benefits to be enjoyed 
in this life and not beyond the grave, and aims recognized 
not by one nation or one interest merely, but regarded 
among the learned in all as the legitimate object of a 
common aspiration. 

It is plain, therefore, that the forces that made the 
mistake can rectify it. The anti-silver movement is itself 
evidence that the counter-policy of union can look for 
adoption, the vital aims of the two being the same, the 
great difference being that one is practical and the other 
not. The ordinance ratified, by an oecumenic council, 
the Monetary Conference of 1867, imposed in fine but a 
special scheme of unification between the local-national 
monetary systems of the world, the distinguishing note 
of which was that it was unpractical and impracticable. 
The execution of it, accordingly, proceeded but a little 
way before motions in arrest were made and carried. 
The anti-silver movement in France had expended its 
force in stopping coinage : the melting down and sale of 
French dollars remained a hrutum fulmen of the doctri- 
naire. The defeat of Free Coinage here and the Confer- 
ence of 1878 operated together as a distinct call to halt. 
Germany, after the lessons of the Conference of 1878 had 
taken effect, suspended her active demonetization. And 
now, for seven years, the gold standard movement pre- 
sides over an admitted deadlock, its activity restricted 
to preventing new silver from becoming full legal-tender 
money in the chief commercial nations. 



8ILVEB BEFOBE C0NGBE88 49 

The reader will, I hope, recognize without difficulty 
that this outlawry of silver is very justly and suggestively 
described as a mal-adjustment of the world's monetary 
system, — a great tower clock set wrongly instead of being 
set rightly. I shall ask him to follow my parallel still 
further ; for I am clear that I can prove it is practicable 
to remove the error by a proper readjustment, the chief 
practical difficulty being, so to speak, not the regulation 
of the clock, but ascending the tower and penetrating the 
works against the will of local guardians, who are, how- 
ever, liable to be removed. 

But, in order to realize in detail the effect of the change 
produced by silver outlawry so far as it has proceeded, it 
is necessary to contrast the fact with that which but for 
this change of conditions would have occurred, so far as 
we can justify conjecture. 

In stating the probabilities, we may, if only for conven- 
ience' sake, assume that, while Germany would take gold 
at fifteen and one-half to one (as she did), but would 
not outlaw silver (as she did), the United States would 
have adopted a course which in that event would be most 
natural, — namely, would have introduced the European 
ratio, thus acting favorably upon the propositions already 
made to her by France, and which, if I remember rightly, 
were actually to some extent favored in the Finance Com- 
mittees of Congress. 

Wherein would the monetary situation thus produced 
differ from that actually in view ? So far as amounts of 
money in existence are concerned, we can easily see that 
the world's stock of silver would have been increased by a 
small percentage arising from a probable increased out-put 
of the mines ; but it is at the same time not improbable 
that, with the confidence of investors natural in an era of 
monetary good feeling, there would have come an out-put 
of gold increased to slight extent. So far as the distribu- 
tion of quantities of the two metals is concerned, it is 



60 QUABTEBLT JOUBNAL OF ECONOMICS 

difficult to discern any ground for assuming any very 
marked disparity from the quotas actually held to-day by 
the various nations. What, then, is the outcome of the 
contrast? Wherein lies the difference ? 

In this supposed situation there would have been no 
cause for uncertainty as to the future value of either half 
of the world's money metal relatively to the other: no 
actual divergence of the market ratio of the metals, which 
would, on the contrary, have remained more firmly grown 
or welded together at fifteen and one-half to one (I omit 
to enter into the question of mint charges and mint 
ratio) ; no undermining of gold values by competing silver 
prices made artificially lower, and so per Be attractive to 
human self-interest ; no ^^ silver question," in fine, would 
have existed to clull confidence, to distract the present 
and cloud the future of individual or of corporate or 
municipal or national finance. As for the general fall of 
prices, it is clear that, to say the very least, no important 
fall would have occurred. 

Before passing out of view of this hypothesis, it may be 
well to call to mind the limits within which reprobation of 
outlawry, and, looking to the future, praise of re-enfran- 
chisement of silver, necessarily proceed. Exaggeration 
in the speaker himself, and, on the part of the hearer, 
the imputation, just or unjust, of exaggeration in the 
speaker, are very common and natural features of warm 
debate, it being in fact impracticable to burden exposi- 
tion of ideas with elaborate forecast or description of the 
limitations of their sphere, although all the while the lim- 
itations exist, and the sound judgment of the speaker is 
always to be proved by his observance of them. Through 
the contrast just drawn between what has happened and 
what it is most natural to suppose would have happened, 
in the monetary constitution of the world, the curious 
reader can apprise himself of the boundaries within which 
our discourse proceeds. 



SILVER BEFORE CONGRESS 51 

He will observe that we are dealing with matters en- 
tirely practical and commonplace ; that we are not en- 
gaged in a radical reconstruction of human nature, but 
simply in a matter of repealing certain laws and having 
others passed ; an ordinary question of reform, except in 
this, — that several nations must act together to achieve it; 
and that, in order to justify the change of policy which he 
proposes, it is merely necessary for the monetary-unionist 
to prove his case by what a jury knows as the preponder- 
ance of evidence. 

Having gone thus far, I venture to believe that the 
reader will be inclined t6 wonder how the outlawry of 
silver has been able to maintain itself so long. Then, 
perhaps, in a mood of interest in the profounder subtle- 
ties of the subject, the interaction of myriads of wealth- 
seeking men and of the conditions that surround them, 
he will be inclined to turn, as it were, the telescope of 
persistent study upon these graded obscurities, the phe- 
nomena of this sidereal chemistry, and will find in what 
he can distinguish of the play of forces thus exposed 
a solution of some questions that may have caused him 
trouble. 

I venture, for example, to hope that he will discover in 
these acts of attainder, passed by the corporate firee will of 
the leading nations against one of the two bearers of the 
valuations of man, a force of tidal range compared with 
which the forces that are the normal outcome of individual 
action and of individual preferences, or of local-national 
elements of disturbance, are but as wavelets on the sur- 
face; the moulding of public opinion in Germany, for 
example, in order to bring about a majority against silver, 
bearing the relation to the ultimate consequences of the 
laws of 1871-1878 which playing with matches might bear 
to a Chicago fire. 

Should the reader pursue this course, he will perhaps 
be surprised to find to what a number of stout and swell- 



62 QUABTEBLT JOURNAL OF ECONOMICS 

ing notions he will be able to say, ** Behold how plain a 
tale will put you down ! " 

To justify an habitual tampering with standard time 
and setting wrong of private clocks, on the ground that 
some people are inclined to be hasty and others too 
slow, is fiedrly analogous to much reasoning on this head, 
to which a heedless time allows currency and power to 
obstruct reform. 

IL 

The- Sections of the Act of Feb. 28, 1878, calling a 
Monetary Conference, made the United States the cham- 
pion and advocate in the community of nations of the 
restoration of civil order in dealing with money. Ck)ncur- 
rent regulation of metallic money by a competent majority 
of nations, and on the basis of equality of legal right 
between the two metals, became by this Act a fixed ob- 
ject of our foreign policy. 

As for the time consumed and to be consumed in pass- 
ing from this turning-point of history to the success of our 
policy, it is well to mark that it is not uncommon for men 
to wait a long time for the attainment of a great end. 
The United Colonies suffered under the Confederation for 
many years before they adopted the Constitution. The 
restoration of greenbacks to par with gold was a struggle 
of many years. The diplomatic successes of this country 
have usually required a long time for their attainment; 
and in the rare instances when we have had a foreign 
policy in the specific sense, when there was some impor- 
tant object to be gained through the action of several 
foreign powers, our lack of a continuing, organized, high- 
grade civil service has naturally unfitted us from advanc- 
ing a meritorious cause with the maximum of speed. 
There is, however, a wide distinction to be observed be- 
tween political issues which are closed by the victory of 
one interest and the defeat of another and an issue whose 



8ILVEB BEFORE CONGRESS 58 

successful solution is a matter of education, pure and sim- 
ple, a recognition of a harmony of interests. It is the 
peculiarity of the situation here analyzed that really great 
and important interests in opposition did not exist, and 
they do not exist to-day. It is the paramount interest of 
all the dwellers in a house that its foundations be firm. 

As to the specific methods adopted by the United States 
to influence Europe, I cannot speak in detail. Of the 
Monetary Conferences, I shall briefly say that, both as 
events affecting nations in their corporate capacity and 
as instruments for the instruction of public opinion, they 
mark important advances toward their goal. I shall like- 
wise observe silence touching that department of inter- 
national strategy which may be called monetary diplo- 
macy, upon the way the imperium of a treaty-making 
sovereign has been handled, upon the attitude of the Ex- 
ecutive and its various acts, active and passive. I should 
willingly set forth a full statement as to the Monetary 
Conferences; for I am aware that they have been the 
occasion of a certain petulance here and of a certain faint- 
heartedness there, as if men were not aware that, as a rule, 
great bodies move slowly ; while in some quarters wilful 
ignorance seems to pride itself upon a travesty of facts. 

The task which the United States had taken in hand 
slowly revealed its magnitude as time went on. The un- 
fitness of our generation to perform its duty of speedy 
reversal of the judgment of outlawry pronounced against 
silver recalls Goethe's comparison of the task that fell 
upon Hamlet to the planting of the oak in the vase, that 
broke in pieces with the strain of a too sturdy growth. 
To learn the lesson that a restoration of the bimetallic 
union of the past, under new guarantees of stability, was 
demanded by the true self-interest of England and of Ger- 
many, implied a mental and moral effort on the part of 
the ruling classes, a change of base in two grand armies 
of opinion and of pride, a turning of the current of great 



54 QUABTEBLT JOURNAL OF ECONOMICS 

rivers of thought and feeling. That Orthodoxy objected 
to becoming obsolete was natural; and it so happened that 
to those personally engaged in the leadership of the anti- 
silver movement the proposed amendments of doctrine 
seemed, in many instances, infected with dangerous heresy. 
The result was in all countries a campaign of defence, 
proceeding with multitudinous activity ; wlule, in political 
regions, inertia and the momentum of accomplished facts 
held sway ; the general tone of discussion upon the evils 
of the day being one of optimism, as if the patient world 
were " doing as well as could be expected." Of course, of 
weapons of offence there was no lack. The air was thick 
with attacks upon what was alleged to be ^* bimetallism " ; 
while iteration prevailed that, whether desirable or no, the 
reversal of silver outlawry was hopelessly impracticable, 
because, forsooth, its authors would never, never, give it 
up. So implacable is the wrath of this modem Juno, 

<< Whose chariot horse aie tired 
With posting to and fro from Greece, and bringing banes desired." 

Alas for the later judgment of Paris, and the palm not 
deserved by the orthodox queen of the economic heaven ! 
The historian of silver outlawry can only too fitly echo 
Virgil's melodious plaint and plea for civilization, — 

** Tantsene animis caelestibus irae I " 

III. 

The familiar observation that great bodies move slowly 
can hardly figure as the last word of wisdom to men 
who see the world suffering from a lesion of great in- 
terests which tend to make its evils chronic, and needs 
but speedy surgery for cure. Great bodies can move 
quickly as well as slowly : the velocity is merely a ques- 
tion of force applied. They need great forces ; and the 
most pertinent of inquiries is: Where are these forces? 
Why are they not in action ? 



SILVER BEFORE C0N0RE88 55 

The need of the time in 1876 and before, and in 1886 
and after, can be summed up in one word, — education. 
The lessons to be taught were, in the end, simple, — the 
application of an obvious remedy to a widely ravaging 
disease. Such, at least, must they be in their final out- 
come, as distilled, so to speak, by science for popular 
acceptance. 

The amendments or extensions by which we sought to 
perfect the monetary science of an earlier day were sim- 
ply a more accurate ascertainment of the effects of self- 
interest when directed by monetary laws. To an open 
mind there is here no serious difficulty. 

This is, by the way, no mere surmise of mine. Its cor- 
rectness can, I think, be well proved. Books, speeches, 
and newspapers have found no great difficulty in popu- 
larizing the knowledge of what is called ^^Gresham's 
law." Now, to one who understands or merely accepts 
"Gresham's law," there need be no difficulty, either in 
understanding or in accepting the Monetary Unionist's 
law ; for both belong to the same order of truths, both 
being the simple and obvious operation of self-interest, 
acting under conditions made by monetary law, one set 
of conditions naturally producing motion, and the other 
naturally producing rest, the former replacing one money 
by another, the latter holding both together in use. 

In fine, surveying the subject in the mass, from a dis- 
tance, the policy of the Conference was, in essence, no 
novelty, but a conservative reaction, being nothing more 
than a restoration of the monetary $tatu8 quo ante^ with 
stronger guarantee for the future, with improved arrange- 
ment for securing firmness for the foundations of the 
world's business ; in other words, that the old bimetallic 
union be set in action on an enlarged and improved scale, 
that Germany and the United States do now what they 
should have done at the start, — namely, model their coin- 
age systems in unison with the States of the Latin Union, 



66 QUABTEBLT JOURNAL OF ECONOMICS 

and that England add her forces, in order completely to 
remove that lack of confidence in the future for which 
a decade of Bilver outlawry is responsible. 

I repeat that the preparation of such ideas as this for 
acceptance by popular leaders and by legislative bodies 
was not beyond the range of those interested. But, as we 
know, this preparation was a task for which many author- 
ized interpreters of science were not disposed. Indeed, to 
attain the desired result, it was necessary to take the cus- 
todians into custody, to lead the shepherd as well as the 
flock. 

Falling back, then, to the elementary needs of the 
time, and looking for great forces of education, for the 
means to make the first break in the vicious circles of 
inertia and prejudice, the situation is still hardly satisfac- 
tory to one whose estimate of the fitness of civilization to 
deal with its inevitable task is set very high. It was 
only after the Conference of 1881 that our allies in Eng- 
land and Germany took heart to establish propagandist 
societies, the International Monetary Standard Association 
(now the Bimetallic League) and the Internationale 
Doppel-Wahrungs Verein. 

Of the good work of education done by these associa- 
tions and by individuals of the brotherhood of monetary 
reformers before or since, I can of course take no time 
to speak. Here the germane and pertinent point of dis- 
cussion is of course what we have done in this country. 
What great forces have been set in motion ? As we have 
seen, through the peculiar advantages of our position, the 
nation became the proponent of the truth, to insure whose 
recognition the education I speak of was needed. So far, 
a great deed was done. But what was done in support 
of this initiative ? I do not speak here of Congress nor 
of the Executive, of omission or commission on their part, 
in the several years that have passed since 1878. After 
all, the silver question in Washington is the silver ques- 



SILVER BEFORE CONGRESS 57 

tion in the hands of representatives of a democratic com- 
monwealth; and it is very germane to know what the 
specially-educated portion of this self-governing people 
has done in addition to assisting to elect political repre- 
sentatives. 

Have they put forth their strength, in order to bring to 
the true path the erring guides of a generation that lost 
its way? If they are to be remembered for that, surely 
we can say of them, with Hamlet, — 

'^By'r Lady, they must have built churches then.** 

Where are their churches? Is there any great organi- 
zation for the education of this generation to perform the 
new duty thrust upon it by the force of events, — namely, 
to deal in council of nations with the money of the 
world, — any great league for monetary reform, any insti- 
tute of monetary law, any board of home and foreign 
missions, or college de propaganda fide, or any gathering 
of Peter's pence or fund for the league, to serve the true 
faith of monetary reform and secure the home rule of 
common sense ? If these things have been done, I regret 
to say I have not been informed of it. My impression 
has been that the greater number of those who are to 
be relied upon as the allies of good government and of 
progress have been sadly under the influence of narcotic 
teaching* 

Yet it follows quite clearly from what has gone before 
that, in some way, education must come, in very appre- 
ciable degree, if sanity is to prevail in monetary legisla- 
tion. Something must be done. This afiEeiir will never 
"settle itself." That familiar refuge of idleness is cut 
off; and the sooner men realize it, the better. The world 
is, in fact, at sea with its money ; and rest is out of the 
question. There is no reaching a stable equilibrium, ex- 
cept by the abolition of silver as money or by its rein- 
statement, which courses respectively suggest the analogy 
of sinking to the bottom or of getting to land. 



68 QUABTEBLT JOURNAL OF ECONOMICS 

The one alternative — namely, the sale of European and 
of Asiatic silver — being naturally excluded, it follows 
that the hope of mankind is in the other, — a settlement 
by concurrence of a working majority of nations. 

It should also be understood that education is needed 
to enable a nation to reach intermediate stages of comfort 
or of progress as well as the remoter end I have set in 
view, so that the work of education should not fail be- 
cause of any lack of faith in our reaching this remotest 
goal. Of one hoped-for intermediate stage in this coun- 
try, the stopping of the coinage of silver dollars, I speak 
elsewhere at length. This, however, is but one, although 
an all-important, possibility out of all those which have 
never been realized. Of some of the many other might- 
have-beens of the past, the reader may find a hint on 
other pages. 

IV. 

The moneys of Western Europe and America are at par 
with gold. Eastern Europe and part of South America 
have much paper, and the rest of the world have silver. 
There is about as much silver money in the world as gold ; 
and there is no very important change or prospect of 
change in that minute annual increment of the stock of 
either metal, which seems fated to be the sempiternal 
object of erroneous reasoning. The money of the occi- 
dental "gold-standard" States contains, including a frac- 
tion of " change," something near fifteen hundred million 
dollars of silver, all at par with gold. 

As for the general condition of business, I may con- 
veniently cite on that head one of the foremost monetary 
writers in the camp opposed to me, Courcelle-Seneuil, 
member of the Institute, who, in the August number of 
the Journal de$ jEeonomi$te$^ says : — 

The industry of the whole world, agricultoral, manofacturmg, 
conmiercial, has been now for a long period in a state of sulEering, 



SILVER BEFOBE C0NQBE88 59 

strongly felt eyeiywhere, and partioolftriy felt in Fnmoe. Eyery day, 
people write and say we aie in the midst of ^ hard times " (jAat <f« 

In England, after a year's deliberation of a Royal Com- 
mission on the Depression of Trade and Industry, a Tory 
administration appoints a Royal Commission on the Cur- 
rency ; and in Germany, the immediate source of all the 
woes of silver and gold, one of the questions of the day 
is whether the finance minister of Prussia is to remain an 
anti-bimetallist. 

This is 1886, and it is seven years since Germany gave 
up selling out her melted thalers; and now for many 
years the world, with various degrees of interest, and with 
intermissions long or short, has been in what I may de- 
scribe as committee of the whole on the monetary ques- 
tion. The occidental world is learning that this war 
between silver and gold is a modem instance (upon a 
scale of magnitude which the monetary statesmen who 
advised a Philip or an Alexander would have compre- 
hended better than the fabulist) of the fable of the pot 
of iron and the pot of earthenware, floating neighbors in 
the flood, and that fate has perversely assigned to gold 
the rdle of fragility as well as of grace. Under the unerr- 
ing gravitation of self-interest, rupee-priced goods are 
lowering the gold price of gold-priced goods ; and so the 
gold valuations of Europe are breaking to pieces under 
the competition of the silver valuations of the East, and 
chiefly, if not wholly, because of the occidental "corner 
on gold," which has lowered the figure of the gold equiva- 
lent of rupee prices so as to undermine the old-time valua- 
tions of Europe.* 

*ThiB matter pecnliarly deseires a thorongrh discoasion. I can only take 
space here to insert a caveat and a demurrer to pleadings current on this head. 
The Indian trouble is a matter of collision rather than of competition. Both 
sides suffer : the Mi ss is sippi Valley, for example, mourns the price of wheat ; 
and India has little cause to rejoice. 

The point was brought to the notice of a National Commercial Conyention, 
held within range of the wheat and cotton interests of the country, at Atlanta, 
Ga., May 21, 1885, as an argument for stoppage. (See post^ p. 74.) 



60 QUABTEBLT JOURNAL OF ECONOMICS 

What is to be the outcome ? Is Europe to pursue the 
path of demonetization, and so intensify the embarrass- 
ments of the situation on a grand scale ? Hardly. Who 
is there left to advocate it? Where, indeed, are the par- 
tisans of earthquake ? And yet it was only in 1869 that 
an English Chancellor of the Exchequer congratulated the 
House of Commons that France was ready to adopt the 
gold standard. To-day, the public melting down and sell- 
ing as bullion of a thousandth part of France's stock of 
silver dollars would create a panic that would spread from 
London throughout the world. 

Or shall Europe try to let the metals settle down on a 
new level, like the child who falls in his effort at walking, 
and makes himself content upon the floor? To follow 
the figure, we consider at once, What sort of a floor has 
Europe to rest on ? There is no floor that deserves the 
name. Is it by contract that Europe is to act as " Europe," 
as one nation? Are the nations to make treaties that they 
will sell no silver and that India will stop absorbing gold? 
Who believes such a thing practicable? What, indeed, 
would be its effect, if it were ? Would it check the fluct- 
uation of the price of silver, and give security to inter- 
metallic trade ? No I The ills of the past decade would, 
in greater or less degree, be perpetuated. 

There is no prospect before the world to-day but the 
manifold alternatives which lie between blundering or 
inaction of isolated nations on one side, and on the other 
speedy concurrence of a majority upon the specific lines 
laid down by the Conference of 1878, or upon some plan 
differing from them only in detail. 

To hasten by years such action, a step toward demone- 
tization may be necessary. The idea is a very familiar 
one in the councils of the champions of the monetary 
union, and it has been so from the outset. Late events 
may serve as an indication of the effect of such lessons. 
The vote in Congress on April 8 (1886) on the bill for 



SILVER BEFORE CONGRESS 61 

free coinage operated — perhaps admittedly, for silver 
leaders are credibly reported as holding that opinion — 
to "kill" free coinage (and a fortiori free bullion cer- 
tificates) in this country; isolated coinage, that is, or 
without concurrent free coinage in Europe. Since then, 
"bimetallism," to use the expression of the London 
TimeBy "has been extending its limits by leaps and bounds 
in England." Is there any relation of cause and effect 
between these events,— : between the death of free coinage 
here and the rise of bimetallism there? I incline to 
think there is. I have no specific evidence to support 
the inference; but it is a very natural inference, espe- 
cially to one who held the same idea as forecast, while 
he was striving to strengthen the defence against free 
coinage. 

As an advocate of stoppage and an opponent of coin- 
age, since 1876, it is germane for me to mention that 
I hold these views not in reference to my own country 
alone. Some years ago, I happened to be in the Hague 
and Amsterdam when the question of a law to allow 
the Bank of the Netherlands to demonetize — that is, 
to melt and sell silver coin at the expense of the 
Treasury — was under discussion; and, in conversation 
with the monetary counsellors of that kingdom, I had 
occasion to maintain the view that the law was politic on 
general public grounds and in the interest of monetary 
union. Of course, it is clear that action on this line by 
a nation of whose future stanch adhesion to bimetallic 
union no doubt exists — as, for example, in the case of the 
United States or of Holland — is a very different move in 
the game from that of a nation hostile to this policy. 

But of a serious extension of ground irreclaimable for 
silver there is little danger. The true danger lies, as 
I have indicated, in inertia and the clashing of petty or 
imagined interests and of unpractical ideas, all tending 
to one result, — inaction ; and, with inaction, the accretion 






62 QUABTEBLT JOURNAL OF ECONOMICS 

of narrow interests tending to perpetuate it. To meet 
this danger, harsh remedies may be needed, just as for 
a patient whose system is able, if kept active by rude 
applications, to throw off the effects of poison. In sight 
of the chronic invalidism of the past ten years, preceded 
as they were by a decade of what I may call poisonous 
medication, it is plain that it is possible for the world to 
blunder on for many a year, if not many a decade beside. 

V. 

Of the specific defects of the present compulsory man- 
ufacture of dollars out of an outlawed and depreciated 
metal, regarded as a purely domestic measure, and of the 
local evils caused by it, I shall say nothing here, the sub- 
ject being already presumably familiar to the reader, 
although perhaps only in a general way, while to treat 
this phase of the matter fully would enlarge this article 
to a volume. We proceed at once to the inquiry how it 
has come to pass that no majority has yet been found in 
Congress to put a stop to it, so that the mints have con- 
tinued to pour forth their grist of dollars, to rest for the 
most part in the Treasury. 

That the passions of the Civil War, in afterglow, had 
their share in the long struggle which the country went 
through in order to bring the greenbacks to par with gold, 
will, I doubt not, be generally admitted. The anti-re- 
sumptionist party gathered into ite ranks all the sections 
of opposition, — the partisan foes of a debt incurred in 
order to suppress the Rebellion, as well as unpractical 
spirits who dreamed of an ideal money, or those who 
thought to fish in the troubled waters of monetary an- 
archy. Of this party, upon its defeat through the Re- 
sumption Act of January, 1875, silver, soon looming 
above the political horizon, became in time the heir or 
residuary legatee. To these elements of opposition to 
the order of things established by the single gold stand- 



8ILVEB BEFORE C0N0BE88 63 

ard law of 1878 were joined the representatives of the 
silver and gold States, who, seeking protection for the 
product of their mines, demanded the £ree coinage of 
silver as well as of gold. 

Of the great mass of citizens who formed an opinion 
upon the question, it seems fair to assume that they ad- 
hered to a sober and common-sense order of view, moving 
within a limited range, to which the extremes alluded to 
were quite foreign. To them, silver and gold were the 
historic money metals ; and they could not find it easy to 
understand why they should not remain money. In so far 
as the gold standard was known as an English idea, it 
would naturally, especially after the decades of protection, 
excite opposition rather than sympathy. In a period of res- 
toration of specie payments, the suppression of one of the 
metals that made specie might easily wear the air of a 
wrong ; while, as to the chance of righting the wrong or 
the true way to go about it, few could be expected to 
enter upon a long post-graduate course of study. 

With this general disposition to be counted upon, it was 
natural that opposition to resumption in gold alone should 
rise to action, and that those elements which were moved 
by passion should take the lead in it. Accordingly, a 
party came to the front known, and not improperly 
known, as a silver party ; for, in spite of the consideration 
publicly shown for gold, and the efforts made to appro- 
priate the credit of *^ bimetallism," as the word and the 
idea came into vogue, the legitimate outcome of the suc- 
cess of this party would have been the transfer of the val- 
uations of the country to a silver basis. In the end, this 
party was foiled and defeated in the chief aim of its ex- 
tremist leaders, — free coinage. 

The ideas which animated its leadership may be tersely 
described as fragments of bimetallism dissolved in paper 
money, being, indeed, a mere adaptation of the **more 
money" cry of earlier days. This cry is peculiarly 



64 



QUABTSBLT JOURNAL OF ECONOMICS 



adapted to seize the attention of the masses on account of 
its blatant promise of profit, every one being, in one 
sense, in favor of more money ; and, also, because it is so 
perfectly simple, and easy of apprehension. It disposes, 
in fact, of difficult operations of statesmanship and deli- 
cate problems of science with a word, — just, one might say, 
so far as science is concerned, as a doctor would do to 
whom a bolus was but the multiple of a pill, its virtue 
subject to the Rule of Three. For the reader will note 
that this cry ignored all questions of quality of money, 
and took its quantity-theory raw, — as if, for example, the 
brains needed for promoting the general welfare of the 
people were asserted to be really a matter of quantity, 
pure and simple, by which reckoning a calf might be con- 
gressman, or a whale Chief Justice. 

Of the true " bimetallists," or of the friends of the 
single gold standard, neither can be said to have formed 
an organized party in the sense in which the " silver-men " 
were organized. Conservative friends of silver or con- 
servative friends of gold were substantially friends of 
both metals, aware, to a greater or less extent, of the mag- 
nitude of the task which was to oppress the statesmanship 
of their time, and only too willing to favor an agree- 
ment of nations upon concurrent repair of a common mis- 
take. Hence, although the future was not clear enough 
to afford those practical issues which assure the needed 
cohesion of a party, the foundations of success for meas- 
ures which should be directly in pursuance of the policy 
of the Conferences were always present. 

So far as any friends of gold can be said to have been 
anti-bimetallists, — that is to say, opposed to the policy of 
restoration of silver in concert with European nations, — 
I doubt if such a programme ever reached formation, their 
liatural disposition being to reject the possibility that such 
international concert could be realized. 

The proposal to stop the coinage — which, owing to the 



SILVER BEFORE C0NQRE88 66 

peculiar situation of Europe, was, really, a powerful meas- 
ure in furtherance of such concert — could of course be 
well espoused as a local measure for local reasons, and with- 
out ulterior view to its effect upon Europe, or upon the 
advancement of the policy of monetary union. But, alone, 
the friends of the single gold standard could not number 
a majority. On the other hand, the proposal to stop the 
coinage had a dangerous look, even to some conservative 
silver-men; and the inertia of legislative bodies was 
always on hand, a steady and powerful pressure in favor 
of doing nothing, efforts for free coinage and free bull- 
ion certificates, or for increasing the minimum of dollar 
coinage, suffering the same fate with the effort to suspend. 

The tendency of strife over the question was centrifu- 
gal. One extreme stimulated another ; and the asperity of 
public debate was transferred to a wider field of popular 
passion, where the great and accomplished wrong of silver 
outlawry, for which Christendom was responsible, and 
which the United States of itself was powerless to right, 
was easily made to appear the double-distilled crime of 
a few selected Americans, while, on the other side, indict- 
ments were volubly framed gainst communities which 
were really incapable of the misdemeanor as charged. 

Of course, a general fall of prices in a world of valua- 
tions, of which a great part are fixed in advance, — increas- 
ing pro tanto^ as it must, the burden of fixed payments 
and the value of fixed receipts, and defeating the projects 
of enterprise, — offers material for misguided self-interest, 
for prejudice, and for passion ; and over the strife about 
cause and cure it was not strange that the red flag of 
"debtor class" and the black flag of "creditor class" 
should here and there be waving, whether in the day- 
light or in the dark. The overwhelming weight of num- 
bers was on the silver side of the shield, and strong 
enough to prevent stoppage. 

In the year 1881, an event occurred, the influence of 



66 QUABTEBLT JOURNAL OF ECONOMICS 

which upon the prospect of proper regulation of the coin- 
age is worthy of attention. The sceptre of executive 
power passed from West to East. To stop the coinage un- 
conditionally, even after instituting the policy of securing 
concert with foreign nations, could easily be made to pass 
as equivalent to remitting the entire future of silver into 
the hand of the Executive. Confidence, therefore, in the 
future handling of silver as an international question on 
the part of the Executive, confidence in its convictions, 
in its zeal, and in its ability, would materially serve to 
rally support for such a measure. But this confidence 
failed to appear. With an Ohio President, it had existed 
in fair measure ; but, with an Executive manned by East- 
em men, it was widely replaced with distrust. 

As the years have gone on, a practical sense of the dan- 
gers attending the silver coinage has tended to re-enforce 
the body of men who had perceived its folly from the 
strategical point of view, as well as its danger on general 
grounds. In the alliance, or rather fusion, of these sec- 
tions of opinion, working upon a public which shall more 
and more study the question, lies the favorable prospect 
for the future. 

The realization is growing that by the indefinite con- 
tinuance of coinage the country is all the time exposing 
itself to a compound lesion; that the threat of broken 
parity itself operates as a check of investment, and tends 
to work a depreciation of property values in excess of the 
country's share of general depression existing among the 
western nations, even though the parity should be main- 
tained ; and there is an increasing sense that stoppage is 
the first and chief dictate of common sense in the interest 
of intelligent international action. 

It is upon these two converging lines that allies for this 
measure are being won throughout the land. The form 
of measure which seems most favored by conservative men 
is a conditional suspension, fixing a date in advance, and 



SILVER BEFORE CONGRESS 67 

giving Europe time to avert a catastrophe. A salient ex- 
ample of such a measure is the bill reported in January, 
1885, for the Senate Finance Committee, by Mr. Morrill, 
of Vermont. 

VI. 

A refusal to purchase and coin silver without concur- 
rent purchase and coinage in Europe was from the start 
a possible mighty force in aid of a pro-silver policy. The 
result of such a measure would naturally be to open the 
eyes of many of the blind from one end of Europe to 
the other, for it would strongly appeal both to interest 
and to reason. 

The effect must be, other things being equal, a fall in 
the gold price of silver; and a 'fall in the gold price of 
silver is a calamity to Europe. But, besides, this calamity 
would be obviously the result of human law. If the ques- 
tion be asked, "What of that?" the answer is, "Every- 
thing." The power of human law over the value of 
money is the root of the whole matter. In this great 
monetary war of a decade of the nineteenth century, — 
since the word was said, " Render unto CaBsar the things 
that are CsBsar's," — the real point at issue is the true 
relation of the State to money, of Csesar to the pieces of 
silver and of gold which bear his image, or embody the 
sovereignty of the State. Well may the unconscious 
scholar, surprised at his books of other science by the 
clatter of this phenomenal world-wide litigation, ask his 
qiMre fremuerunt gefUe$; and, alas I the answer is, "Be- 
cause the learned world imagined a vain thing about the 
value of money, and the power and duty of nations to 
regulate it." 

Under these circumstances, a demonstration — public 
urbi et arbi^ and especially to London and Berlin — that 
human law in one continent can shrivel up valuations in 
another would serve as a lesson of rare persuasiveness. 



68 QUABTERLY JOURNAL OF ECONOMICS 

But why is a fall of silver a special calamity to Europe? 
Because Europe's real interest in silver is greater in pro- 
portion than that of the United States. The fall would 
shake the foundations of European investments. Europe 
held a thousand millions of full legal-tender silver, beside 
all her change. What security could she feel in its use, 
in case of a sudden decline of the value of the bullion 
in it? But far beyond this. The fall meant an in- 
crease in the silver figures of India's gold debt, and a 
novel dislocation of the business between Europe, on one 
side, and Asia and South America, on the other. To all 
these embarrassments there was no end except in a con- 
current silver-favoring policy, the monetary future being 
a stormy sea, with but this one port of refuge. 

Of course, such a measure would involve no refusal 
of free coinage on our part, when Europe should come 
to terms; and, if necessary, guarantees of concurrence 
could be fully set forth in advance, so that stoppage 
would be explicitly an act or threat of righteous war, 
to be averted by making a righteous peace. 

We had this force in hand in 1875, 1876. We had it 
in 1877, and we have it still. Few are aware to-day that 
oiu: silver blunder began long before 1878 ; that the coin- 
ing of dollars meant merely an enlargement, not the 
beginning, of the government purchase of silver. Those 
days of callowness seem far enough away ; but many will 
remember, at least, that the substitution of silver coin for 
fractional currency was currently held to be a long step 
forward toward " resumption." In fact, the Resumption 
Act of Jan. 14, 1875, ordered a coinage of silver change ; 
and on July 22, 1876, a resolution was passed in support 
of silver coinage, and nearly thirty-five millions worth 
were purchased in the interval before 1878. In 1876, 
when Holland closed her mints; in 1876, when France 
rejected silver, — we held the power to force the silver 
question upon Europe, and failed to use it. Our purchase 



8ILVEB BEFOBE C0NQBE88 69 

of bullion and coinage here was thus the direct ally of 
the melters of thalers in Germany. In fact, we kept up 
the price, as if to help on the cause of demonetization. 
But, with all that has been said, the effect of stoppage 
is not yet fully stated. Our limited coinage has operated 

— of course with widely varying force at different times 
and in different quarters — as a promise of free coinage. 
Through the help of our coining silver, monetary states- 
men in Europe, who would be only too glad to make a 
plausible case to that effect, would be enabled to advise 
their clients to hold on their course, unmoved by pro- 
silver pleas, to make no concessions to bimetallists ; for 
the day was coming when free coinage, or, better stiU, 
free bullion certificates in the United States, would make 
fair weather for Europeans committed against silver. 
Coinage here thus operated directly to close the ears and 
blind the eyes of the men in Europe whose conversion 
it was vital to bring about. 

But, to lay much stress upon this point of view, it was 
necessary to be a thorough-going "bimetallist," enlisted for 
the war. To a friend of silver whose study and convic- 
tions failed to reach this depth, the policy of stoppage 
wore the air of heroic surgery. Certainly, it was surgery. 
That was its peculiarity. And it was surgery in good 
time. It is simple to have a broken bone well set at 
first; but, after it has taken its own course, it may be- 
come necessary to break it again, — a risk which silver- 
men, controlled by narrow views, and, indeed, with insuf- 
ficient confidence in the merits of the cause of silver, 
preferred to incur, to the injury of all concerned. So 
far as the United States were concerned, the damage to be 
suffered was unimportant compared with the end in view, 

— a hardship, it is true, for the owners of silver mines, if 
Europe should hold out long ; but the interest of silver- 
mine owners never made the strength of the silver party. 
Its real strength lay always in the opposition to what was 
known as "contraction." 



70 QUABTERLY JOURNAL OF ECONOMICS 

Strange to say, it has been possible for the leaders of 
this party to hold their position upon this line of defence. 
The idea has been current that an increment to our 
money stock of at least twenty-four millions a year — 
a safeguard of that extent against " contraction " — is cre- 
ated, not by having the silver to sell, but by having the 
government buy it and coin it. The idea that, if it were 
not coined, the silver could be sold in Europe for gold, 
and the gold brought here to swell the money tide, has 
failed to penetrate very far, and, ;where it could make its 
way, would be met by the allegation that the margin 
between the silver dollars the bullion would have made 
and the gold dollars it will buy would be a terrible 
"loss" or "contraction,'* or both. If this line of argu- 
ment could be erased from the records of politicians, what 
a vacuum would be left ! 

But, while recognizing all that is to be regretted in the 
situation thus portrayed, it is still germane to recall that 
such things are very natural in the present state of pop- 
ular education. The mere diflSculty of explaining to pop- 
ular audiences the conditions of success in this game of 
international politics which is under review keeps the dice 
of domestic politics steadily loaded on the side of short- 
sightedness, of ignorance, or of cunning. 

The experience of years is, however, impressing some of 
the supporters of silver, and, I am told, some who are 
interested in silver mines and whose centre of gravity is 
in their pockets, that there was, after all, an element of 
boyishness in rallying the anti-gold-contraction majority, 
as they did, to support free coinage. With the fall of 
prices that has gone on, with wheat and cotton where they 
stand now, and their precious metal twenty per cent, 
lower than in 1878, the dreams of expansion may well lack 
the credit of prophecy which they once enjoyed. After 
ten years of prices falling in the teeth of the prophets, one 
would suppose that exposure of inflation which does not 



SILVER BEFORE CONGRESS 71 

inflate would be welcome, and that the sham ^^bimetal- 
lism" which has been palmed off upon them would be 
rejected. 

Especially since the Conference of 1881, the failure of 
the silver States or of the silver party, in mere self-inter- 
est or self-defence, to develop a statesmanlike grasp of the 
diplomatic situation of silver, wears a phenomenal aspect. 
With all the native energy of mind and practical sense 
which we know to exist in those who have colonized the 
Pacific States, no one seems to have persistence enough in 
pure brain-work to strike the lode in the right place by 
piercing the monetary tunnel through to the end, though 
none should know better than they that, in tunnels, the 
last few strokes are worth all the rest. Ever since 1881, 
the field has been waiting for such men to '^complete 
the circuit." It was in that year, only a decade after 
the capture of Paris, that the German Empire, fore- 
going pride, sent her ambassador to that republican city 
to offer concessions to induce France and the United 
States to open their mints to free coinage, — admitting 
that the rehabilitation of silver was to be desired, and 
that it could be accomplished by a coinage union, — while 
England was there to say she would to that end abstain 
from coining gold in India, and would issue legal-tender 
Bank of England notes on silver up to the limit of the 
law. And yet I have never even heard of a question why 
it was that the American delegation omitted to procure 
coinage of silver in Europe on that basis. 

VII. 

In presence of the disquietude touching the rising tide 
of over-valued silver in the moneys of the country, — a 
disquietude which, in many minds, rose to forecast of a 
speedy break in their parity, — it was a foregone conclusion 
that, with the Forty-ninth Congress, an active campaign 
would be opened over the silver dollar. Parallel with 
this growing disquietude, a growing practical recognition 



72 QUABTEBLT JOURNAL OF ECONOMICS 

of the merits of the wider issues involved in silver made 
itself apparent, an unwieldy public opinion thus showing 
itself capable of answering at need to the helm of truth. 

As an example of highest significance may be cited the 
expressions of the political conventions of the two par- 
ties in the State of New York, September, 1885, the Re- 
publican platform going so far as to say that the restora- 
tion of silver to its former position, until accomplished, 
must remain the chief aim of our monetary policy. Of 
like significance and of unique practical importance was 
the Report of the Secretary of the Treasury, accompany- 
ing the President's message to Congress, which breathed 
the spirit of earnest adhesion to the policy of the Mone- 
tary Conferences. 

The first decisive step of the campaign in Congress 
consisted, of course, in the appointment by the Speaker 
of the Committee of Coinage, Weights, and Measures, 
that committee, and not the Committee on Banking and 
Currency, being held to have charge of silver legislation. 

The committee, as appointed, was expected to insure 
at least a full presentation of the silver question before 
the House ; and it was believed that the balance inclined 
in favor of a moderate measure of suspension. 

The committee, however, was not allowed to monopo- 
lize the subject. The advocates of the dollar coinage had 
found themselves re-enforced by an active and militant 
organization for agitation, which bore the misleading 
name of the *^ National Bimetallic Coinage Association," 
the abundant motive power of which is understood to 
have proceeded from the silver-mining interests. Under 
this lead, the campaign of the friends of the present sil- 
ver dollar made aggression the means of its defence, and in 
part transferred the scene of struggle from suspension to 
free coinage. Extreme positions were taken by speakers 
on every point of attack. The dissemination of documents 
to work upon Congressmen through their constituents, 
and the stimulating of petitions to be sent to Congress, — 



SILVER BEFORE CONGRESS 75 

all efforts combining, in order to awake popular wrath 
against an alleged conspiracy, sometimes described in 
extravagant and incendiary terms, a conspiracy of the 
"money power'* to grind the face of the poor, — were 
qnietly pressed with energy and with ability. 

The subject came upon the floor of Congress in various 
forms. In the Senate, in December, 1885, Mr. Beck, of 
Kentucky, presented a resolution, the ultimate aim of 
which was to require silver coin to be paid by the treasury 
to "the bondholder"; while, a month later, Mr. Sjrmes, 
of Colorado, presented in the House a resolution against 
suspension of coinage. A series of speeches in either 
House followed, from time to time, throughout the earlier 
months of the session. Mr. Jones, of Nevada, presented 
to the Senate a memorial from the Bimetallic Coinage 
Association, the appearance of which, in the Congrei- 
$ional Record^ gave free circulation, under the franks of 
members of Congress, for an instrument of agitation 
which was in some respects peculiarly well adapted to 
serve its purpose. A brief analysis of this memorial will 
prove instructive. 

The burden of its many pages was the competition of 
India, and the havoc wrought in the wheat and cotton 
States, and, in general, in the foreign export trade of the 
country, by exportation of India products. The cure for 
all this was to be free coinage of the silver dollar in the 
United States, at the ratio of sixteen to one. The 
obvious objection that free coinage here would enable 
other countries to pour in their silver and take away our 
gold in exchange for it, relegating us to the silver stand- 
ard, was met in a peculiar manner. Under the title " The 
Fallacy-Dumping Ground for Silver," the memorial gives 
a plain, unvarnished statement about " the rates of coin- 
age of the several leading nations in this world," how 
"the Latin Union" and how "the German Empire, as 
well as the other [no] nations of Central and South 
America, coin at fifteen and one-half to one," etc. Of 



74 QUARTERLY JOURNAL OF ECONOMICS 

course, if this were true, the cause of free coinage here 
would be entitled to respect. In fact, if one could say 
with truth, the German Empire coin$^ the Latin Union 
coin$^ at fifteen and one-half to one, there need be no 
trouble about silver coinage at all in this country ; for it 
was the cessation of coinage in those countries that cre- 
ated the " silver question." 

It must be admitted that, although untrue, the state- 
ment was well invented. It is also to be observed with 
regret that its composition and dissemination reveal at 
least a phenomenal wilfulness of ignorance. So far as 
the competition of India is concerned, the point was not 
a new one (see page 59) ; and it is, as has been shown in 
the preceding pages, a potent argument in favor of stop- 
page. But while the Indian question made no figure in 
the general discussion in Congress, this misrepresentation 
of vital facts as to coinage in other countries found abun- 
dant echo. 

Of the many and elaborate, ingenious, eloquent dis- 
courses presented by members of the House and Senate, 
it is obviously impossible to speak at length. The gen- 
eral lines of conflict have been clearly indicated in the 
course of this paper, and it remains for me merely to 
chronicle in few words the outcome of the struggle. So, 
of the manifold propositions under consideration, I can 
give no adequate catalogue here. One class of these, re- 
placing coinage of dollars by the issue of certificates 
based upon bullion, under various conditions, had at 
one time promised to take the foremost place in debate. 
Propositions were also mooted for an enabling act pro- 
viding in advance for carrying into effect any treaty 
made and ratified for free coinage of silver, thus reliev- 
ing the treaty-making power of whatever obstacle might 
arise from the existence of the power in the House to 
nullify a coinage treaty, or from the knowledge of foreign 
statesmen that such power exists. With this was coupled 
a provision supplying the lack of means for continuous 



SILVER BEFORE CONGRESS 76 

and competent attention to the international side of the 
monetary question by a commission charged with the duty 
of acting in this behalf under the direction of the execu- 
tive. There were also, among others, propositions for 
making full legal-tender money interchangeable. 

But, under the pressure of agitation for free coinage, 
the contest was in the end narrowed down to the simplest 
issues. A bill introduced by Mr. Bland for free coinage 
and for making the silver dollar a unit of account, on an 
equality with gold, was finally rejected in committee by 
a majority of one, and was reported to the House early in 
March by Mr. James of New York, with the expression of 
unqualified condemnation. Under the rules, the debate 
proceeded upon the bill or upon such amendment or sub- 
stitutes as Mr. James should allow to be presented. At 
the close of the long and exhaustive debate, a substitute 
was presented by Mr. Dibble of South Carolina, provid- 
ing for suspension on July 1, 1889, in case silver should 
not have been remonetized through concurrent action of 
European nations before that time. This was voted down 
by a vote of 201 to 84. The vote was then taken (April 
8, 1886) upon Mr. Bland's bill, which was defeated by 
163 to 126. 

After this decision was reached in the House, the cur- 
rent of discussion took other courses, the silver question 
coming to the front again only in the resolution aimed at 
forcing the silver dollars out from the treasury, and in 
the provisions for one, two, and five dollar certificates. 
With the passage of the latter measure, a modicum of 
compromise between militant extremes seems to have 
made its way to popularity. 

If the maxim, Second thoughts are always best, can be 
held to apply to so important a body, we may hope that 
at its second session the Forty-ninth Congress will be en- 
abled to fix a limit to the present amorphous and anoma- 
lous state of affairs. 

S. Dana Hobton. 



NOTES AND MEMORANDA. 



M. Rbnb Stoubk, well known from his recently published 
financial history of the Old Regime and of the Revolution, has 
begun the publication of a bibliography of the French finances 
for the eighteenth century in the Annales de PEcoU Libre des 
Sciences Politiquea, The plan contemplates a division of the 
subject into (1) general histories, (2) histories of chronological 
periods, (3) accounts of special topics. The first article in 
the July number of the Annales covers the first division only, 
giving general histories and sources down to the end of the 
Revolution, with a running account of the subject and brief 
comments upon many of the evils noticed. Completed upon 
this plan, the bibliography promises to be an important aid to 
the student. 

The Parliamentary documents for 1886 will contain a good 
deal of evidence of the increasing uneasiness as to the condi- 
tion and prospects of the foreign trade of England. A Blue 
Book has been issued, giving the rates of duty levied on 
imports by the different European countries and the United 
States ; and a second is to give the duties levied by the British 
colonies, — these returns being on the plan of the similar docu- 
ments published in 1882. The Commission on the Depression 
of Trade have also collected and published reports from the 
English consuls, showing the impediments to British trade in 
the different countries. And, finally, a mass of correspond- 
ence between the foreign office and chambers of commerce, 
merchants, and consular officers, on the means of promoting 
the external trade, has been produced in a Parliamentary 
paper, with a long memorandum on the subject, prepared by 
Mr. Bryce while he was yet Under-Secretary for Foreign 
Affairs. 



NOTES AND MEMORANDA 77 

The new Board of Trade Journal^ of which the publication 
began in September, is a further indication of the same sort. 
The object of the new journal is to give to the public early 
official information as to tariffs, customs regulations and deci- 
sions in foreign countries, and trade movements of impor- 
tance, and to present a variety of statistical matter not hitherto 
included in the government publications. But the founda- 
tion of an official journal of this sort marks conveniently the 
point at which the effects of the progress of industry in 
other countries has become too marked to be ignored. 



The opening of fertile wheat lands in the United States, 
and the cheap transportation of grain to Europe, have had an 
influence not only on England and Ireland, but on France, 
Germany, and Russia. French and German legislation has 
been invoked to protect the farmer. But now an interesting 
movement is in progress among the Russian peasants, by 
which the former serfs are becoming separated from the land. 

At the time of the emancipation of the serfs, Russia con- 
trolled the wheat markets of Western Europe ; while the prices 
of agricultural products were high, and even rising. This led 
to the fixing of a sum for the redemption of their land by the 
serfs, under the emancipation scheme, adapted to a period of 
high prices and {^cultural prosperity. Since then, Russia 
has been distanced by the United States in the race for the 
supremacy in the wheat markets of Western Europe, and is 
being passed also by India; a succession of poor crops has 
weighed upon the producer ; and the situation has been fur- 
ther aggravated by the fall in prices. Similar conditions in 
Ireland brought about the Land Act of 1881, and the reduction 
of rents by judicial process. In Russia, however, the result has 
been somewhat different. Finding it impossible to pay the 
sums with which they were charged at the time of their eman- 
cipation, because of the changed conditions of agriculture, abo 
burdened by heavier government taxes, arising from costly 
wars, the peasantry have begun to sell their land. It is said 
that, since 1871, the landless peasants have increased from five 
per cent, to fifteen per cent, of the population, so that those 



78 QUABTEBLT JOUBNAL OF ECONOMICS 

who fear the effect of an increasing namber of landless peas- 
ants dependent solely on wages are seriously considering the 
advisability of restricting their right to alienate their land. 



The English papers have given the text of the Treasury 
Minute providing for the appointment of the Royal Commis- 
sion to investigate the changes in the relative values of the 
precious metal in recent years. Thb investigation has been 
ordered upon the recommendation of the Commission on the 
Depression of Trade ; and the plan of inquiry is given in the 
Minute with some detail, under two general heads. The new 
Conmiission are to inquire (1) whether recent changes of value 

are due, — 

1. To the depreciation of silver ; or 

2. To the appreciation of gold ; or 

3. To both causes. 

They are next to inquire (2) what effects these changes have 
produced : — 

L India. 

(a) Upon remittances of the Gk>vemment of India. 

1. For payments on old or fixed contracts. 

2. For payments on new or current contracts. 

(b) Upon the persons in India who have to make remittances home in 

gold. 

(c) Upon the producers, merchants, and tax-payers of India. 

(d) Upon merchants and manufacturers at home, who trade with India, 
n. The United Kingdom. 

(a) Upon the trade of the United Kingdom with other silver-using 

countries. 
(h) Upon the foreign trade of the United Kingdom generally, 
(c) Upon the internal trade and industry of the United Kingdom. 

The duty of the Commission also includes an inquiry into 
possible remedies for existing evils. 

It is easy to agree with the opinion which has been expressed, 
especially by the Ecanomuty that, as regards the first class of 
topics at any rate, the new investigation is not likely to con- 
tribute much. The field has already been well gleaned ; and 
there seems to be little to be done, except, perhaps, to collect 
in systematic form matter which is now a good deal scattered, 
and to bring all information down to date. But, as regards 



NOTES AND MEMOBANDA 79 

the second branch of inquiry, the effects of monetary changes on 
the condition of industry and trade, and on different classes of 
people, especially in India, there is no doubt need of a searching 
investigation and an opportunity for service of lasting value. 

The text of the Minute may be found in the JSconamtst of 
September 11, and also, with a list of the new commissioners 
(of whom Mr. A. J. Balfour is chairman), in the JFinancicU 
Chronicle of September 25. 



The Economist for September 25 gives some consideration 
to the important question whether the fall in silver has af- 
fected the trade between Great Britain, with its single gold 
standard, and the silver-using countries. The figures from 
the statistical abstract show that the imports from silver-using 
countries have fluctuated in much the same way as the total 
imports from all countries, with, however, a decided decline ; 
and that the whole of the loss has occurred in the trade with 
China and Peru, which contribute about one-fourth of the 
trade with silver-using countries. The exports to such coun- 
tries show a considerable increase, having gained in larger 
proportion than the total of exports to all countries. But, 
here again, the gain is chiefly in exports to India and to the 
Argentine Republic, the latter country having been a large 
borrower. 

On the whole, the returns show no very marked result ; and 
the conclusion of the Economist is that the fall in silver ^ has 
no doubt helped to hamper our trade with silver-using conn- 
tries, as a whole. But in this, as in other things, merchants 
have apparently been able to accommodate themselves to 
circumstances ; and, as a consequence, trade has not suffered 
to any very great extent." To the same effect is the fact no- 
ticed by the Statist^ that the export of English cotton piece- 
goods had increased more than twenty-five per cent, in the 
first six months of this year. 



The twentieth volume of the Tenth Census Report of the 
United States is entirely devoted to a special report on the 
statistics of wages in manufacturing industries, the retail 



80 QUARTEBLY JOURNAL OF ECONOMICS 

prices of the necessaries of life, and the statistics of trade 
societies, strikes, and lock-outs, by Joseph D. Weeks, the 
expert and special agent appointed for the purpose. In a 
prefatory note by President Walker, dated July 3, 1886, the 
remark is made that this is probably ^ the largest magazine of 
statistics relating to the wages of labor to be found in any 
single publication.'' In several respects, besides its mere ex- 
tent and accuracy, as to which we are assured that no pains 
have been spared, the collection promises to be of great value 
as a contribution to economic history. 

In the tables of wages, the subdivisions of employments are 
separately reported upon, and the schedules are made com- 
mensurable by being reduced to the same unit of payment 
(by the day, in the majority of cases). Reports are given 
from 627 establishments, scattered over 53 industries, and 
found in every part of the Union, thus: — 



Boots and Shoes, . 


. 181 


rable 


s from 9 


Blast Furnaces, . 


. 40 




" 15 


Paper Mills, . . . 


. 86 




" 15 


Cotton Goods, . . 


. 36 




" 15 


Woollen Goods, . 


. 86 




" 23 


Furniture, . . . 


. 41 




" 15 



It is of great importance that the rates of wages thus col- 
lected were for as many years as could be obtained. Thus 
73 tables run back at least to 1850, and in one case informa- 
tion was given to the bureau reaching back to 1801. 106 more 
cover the period of the war. The value of the material thus 
secured needs no explanation. The information secured as to 
hours of labor is also well distributed in time. In 772 reports 
are 84 statements as to hours of labor in 1830, and 350 as to 
hours in 1860. 

In the investigation of retail prices of the necessaries of 
life, as the purpose was to exhibit as far as possible the pur- 
chasing power of wages, the effort was made to obtain prices 
as far back as 1851, and with some success. A large part of 
the returns will give the opportunity for a comparison of 
twenty years, subject, of course, to the well-known drawbacks 
affecting all information as to retail prices and the goods 
retailed. 



NOTES AND MEMORANDA 81 



SILVER AS A REGULATOR OF PRICES. 

M. Leon Walbas, professor at the Academy of Lausanne, 
and well known as the leading advocate and student of the 
mathematical theory of political economy, has reprinted from 
the Jtevue Scientifique (April 10 and 17, 1886) his «' Th6orie 
de la Monnaie," in which the author applies his method to the 
question of the standards. The paper is remarkable, both 
from the peculiarity of the conclusions reached and from the 
fact that the conclusions represent the final stage in a series of 
changes of opinion, produced by the author's researches in 
pure political economy. 

Down to the publication of his J^lemenU cPJScanamie Pdu 
tique Pure in 1874, M. Walras had advocated the single gold 
standard and the free issue of bank-notes. By steps marked 
by a succession of contributions to different journals and so- 
cieties, he became, a year ago, the advocate of a gold stand- 
ard with a token currency of silver to act as a regulator 
(monnaxe cPor avec biilon cP argent rigtdcUettr) and the prohibi- 
tion of all notes. This is the arrangement which M. Walras 
expounds and defends against some criticisms, in his IT^Sorie^ 
starting from the proposition that ** the scarcity of the mer- 
chandise used as money should so vary that the prices of other 
merchandise measured in it should be unchanged " : — 

The object aimed at is not to make the scarcity and value of the 
money merchandise absolutely fixed. Among ordinary commodities 
there are some, like certain agricultural products, which, independently 
of weekly, monthly, or annual fiuctuations, regularly increase in scarcity 
and value; and there are others, like most manufactured products, 
which, independently of fiuctuations due to various causes, regularly 
lose as regards scarcity and value. All would be well if the variations 
in scarcity and value of the money merchandise were the means of the 
variations in scarcity and value of other kinds of merchandise. Gold 
cannot, any more than any other commodity, take on such a variation 
naturally; but gold can receive it artificiaUy from the addition of silver 
pieces to the monetary circulation, or their withdrawal therefrom, as 
occasion may require. And it is to this point that I have shown that 
we should come, — of making these additions or subtractions in such 
a way as to bring back periodically to constancy the mean of the prices 
of goods. 



82 QUABTEBLT JOURNAL OF ECONOMICS 

To apply the system in a case like that now existing : — 

Gold alone is mtmey to-day, and onght alone to supply the definition 
of the franc The franc should be defined as '* ilnr « H grammes of 
gold, A fine." Silver is a token (billon). For pieces of i, 1, and 2 francs, 
— that is, of 2.5, 5, and 10 grammes of Nh fine, — it should be the divi- 
sionary token. For pieces of 5 francs, — that is, 25 grammes of ffh fine, — 
it should be the r€g%UcUing token. A mathematical calculation, of which 
the practical detiUl is yet to be arranged, will teach us whether we ought 
to pour the regulating token {billon Hgrdateur) little by little into the 
monetary circulation, or withdraw it. In the first case, we tmn toward 
bimetallism, to which we shall actually come if we take enough silver 
from the bullion market to make its gold price rise from A or ^ to tH. 
In the second case, we incline to gold monometallism, which we shall 
reach the day when no more sUver pieces are left in circulation. 

It is easy to see that for the working of this system some- 
thing like Tmiversality is required. England and Germany 
most join the United States and the Latin Union in the use of 
token silver as legal tender, and all must agree upon the quan- 
tity to be struck by each and to be kept in circnlation. All 
must agree also npon a strict regulation, at any rate, of paper 
issues, and especially of legal-tender paper, so that the varia- 
tion of the mean of prices from the assumed constant may 
be operated on with certainty by the stream of silver. To 
practical difficulties of this sort, unfortunately, no calculus 
can yet be applied ; and M. Walras accordingly passes over 
them lightly, with the frank admission that he has not yet 
made a sufficiently deep study of them. He is clear, however, 
that something must be done to regulate the value of money. 

"Money," says M. Cemuschi, "ought to be automatic." That is 
the rule laid down. But, on the contrary, money ought to be of real 
value equal to its nominal value. It ought, also, to be of a value as 
regularly variable as possible. That is what it ought to be. And if, to 
bring it to this, the State must intervene a little more than you have 
made it heretofore, money ought not to be and will not be automatic. 

The object aimed at by M. Walras appears to be to insure 
that a given sum of money shall always bear, as nearly as pos- 
sible, the same relation to a given mass of commodities, what- 
ever changes in production time may bring. Even if this be 
desirable, which is open to question, the mode of operation 



NOTES AND MEMORANDA 88 

presents difficulties not to be treated with levity. To make 
a selection of commodities, agricoltaral and manufactared, to 
be used as the standard, to assign to each its coefficient of 
relative importancei to determine the quantity of money and 
bullion in the country, and to ascertain the amount of the 
transactions settled by ofiEset, are problems which will proba- 
bly be regarded more seriously by the practical financier than 
by the ingenious theorist. By one difficulty, however, M. 
Walras finds himself pressed. As a certain fluctuation of 
prices with the times must in any case be expected and 
allowed for, can the future movements of price be foretold 
accurately enough, to insure against an issue of token money 
on the eve of a rise of prices from other causes, or a with- 
drawal when prices would have fallen? If this cannot be 
insured against, the plan in operation might even exaggerate 
the fluctuations which it is desired to prevent. This and simi- 
lar difficulties of administration it^ seems hard to escape, if our 
dependence has still to rest on the range of view and foresight 
of merely human agencies. 



THE ARITHMETIC, GEOMETRIC, AND HARMONIC MEANS. 

The late Mr. Jevons repeatedly declared his preference for 
the geometric mean in economic investigations instead of the 
arithmetic mean, commonly used. He has also referred to 
the possibility of employing the harmonic mean. But he has 
nowhere left an explicit statement of his reasons for prefer- 
ring one mean to the other. 

The possibility of choice between different means does not 
exist in most of the cases which the student of physical sci- 
ence encounters. The mean is generally for the physicist the 
manner in which he infers the magnitude of a real quantity 
from a number of varying measurements. As the mean repre- 
sents a real quantity, it can evidently have but one true value, 
whether our defective knowledge enables us to know which 
mean gives this or not. Such a mean, representing a real 
quantity, is known according to its nature as the Precise 
Mean Result or as the Probable Mean Result. 



84 QUABTSBLT JOUBNAL OF ECONOMICS 

Thus, the physiciflt makes seyend measurements of the 
length of a strip of steel. These measurements differ slightly 
from unavoidable errors in adjusting and reading the instru- 
ment; but the error is equally likely to fall on either side 
of the truth, and the true length is most probably the arith- 
metic mean of the measurements. For the proof of this 
proposition generally received, see Chauvenet's Astronomy^ 
vol. ii., Appendix. Such a mean, where the causes cannot 
be eliminated with perfect certainty, is called the Probable 
Mean Result Again, the physicist may wish to obtain the 
exact weight of a body. No balance is exactly poised so that 
the two arms are precisely equal. But their difference effects 
the result by a known law of mechanics. This law shows that 
by weighing the body first in one pan and then in the other, 
and taking the geometric mean of the two weights, we shall 
get the exact answer. Such a mean is the Precise Mean 
Result. 

The mean commonly employed by the economist is of 
a quite different character. It is not a real quantity at all, 
but is a quantity assumed as the representative of a number 
of others differing from it more or less. It is made to stand 
for these other real quantities, for convenience in reasoning 
about them or in drawing general conclusions from them col- 
lectively. This is the Fictitious Mean or average, properly 
so called. Its fictitious character renders it possible to make 
choice among different values, and thus among different 
methods of finding it. This is generally overlooked by those 
who invariably use the arithmetic mean as if it were the only 
one which could be applicable. The only justification for any 
fictitious mean is to be found in its convenience as a represen- 
tative of the true quantities. It is upon this criterion that 
Mr. Jevons based his choice. 

The fictitious mean necessarily errs from the correct value 
for each real quantity which it represents. Mr. Jevons seems 
to imply that the mean to be chosen is that which most fairly 
divides the error among the quantities. 

He considers three means, the arithmetic, the geometric, and 
the harmonic. The arithmetic mean is that commonly used. 



NOTES AND MEMORANDA 85 

It may be defined to be the quotient of the sum of the qaanti- 
ties by their namber. Its general formula is : — 

_ a -4- 6 -4- . . • . m 

X = — ■ ! 

n 

Its great simplioity recommends it for general use, and it at 
first sight seems to distribute the error very fairly. Thus, if 
we are considering the change in price of two commodities, 
one of which has remained unchanged, while the other has 
doubled in price, we take the arithmetic mean of 100 per 
cent, and 200 per cent., and got the average price, 150 per 
cent., a rise of 50 per cent. This is an error of 50 of the 
units employed for each quantity. But an error of 50 in 
estimating a quantity of 100 units is much more serious than 
in a quantity of 200 units. As we are at liberty to choose 
our mean as we like, however, we may still take the arith- 
metic mean, when we think it fairer to favor the commodity 
which has risen most. This may be right, when that com- 
modity is much the more important. The arithmetic mean 
will always be found to give a smaller proportional error for 
the larger quantities. 

The geometric mean, which Mr. Jevons prefers, is defined 
as the nth root of the continued product of n quantities. It 
may be defined in terms of the arithmetic mean as the quan- 
tity whose logarithm is the arithmetic mean of the logarithms 
of the given quantities. Its formula would then be : — 

J _ logg + logft-f logm 

^ n 

The use of logarithms makes the geometric mean almost as 
convenient as the arithmetic. There are cases, such as the 
determination of the population at any time, its rate of in- 
crease being known, in which the economist must employ 
this mean. The mean is here a real quantity, and not ficti- 
tious. Mr. Jevons also thinks that it should be used in aver- 
aging changes of prices, and the like. There seems to be no 
reason why this mean should be used in such cases, except the 
very insufficient one that its result will fall between that of 
the arithmetic and that of the harmonic. Mr. Jevons seems 



86 QUABTSBLT JOURNAL OF ECONOMICS 

to imply that the error is more fairly distribated, and points 
out that, in the case above supposed, the geometric mean, 
about 141 per cent^ would be more just, because, as he re- 
marks, i^f ^ }H* B^^ there seems to be no reason why the 
fact that the ratio of the smaller quantity to the average is 
equal to the ratio of the average to the larger quantity should 
be considered of importance. If, as seems desirable, we seek 
to apportion the error fairly among equally important quan- 
tities, we must take the harmonic mean. 

The harmonic mean, defined in terms of the arithmetic, 
is the quantity whose reciprocal is the arithmetic mean of the 
reciprocals of the given quantities. Its formula is : — 

X — OL b m 

n 

This is a very awkward mean to calculate, which renders it 
undesirable for general use. But it does give the error fairly 
according to the size of the quantities. Thus, in the supposed 
case, the average price would be about 133 per cent., an 
error of 33 or one-third for the smaller quantity, an error of 
67 or one-third for the larger. 

The geometric mean may be better for general use, because 
it combines simplicity with an approach to a fair distribution. 
The fact that the mean is a fictitious quantity, and that it 
should be so taken that the error may be least misleading, is 
the ultimate criterion, and may determine a different choice 
in different cases. See Jevons's Investigations in Ourrena/ 
and Finance^ pp. 23 and 120, and the same author's Prin- 
ciples of Science^ 8d ed., chap, xvi., for the discussion upon 
which this note is based. F. Coggbshall. 



LEGISLATION FOR LABOR ARBITRATION. 

On account of the increased number of lock-outs and strikes 
during the past year, the legislatures of several of the States 
holding sessions for 1885-86 felt it their duty to make some 
provision for boards or tribunals of arbitration created or sanc- 
tioned by the State. Four States — Iowa and Ejtnsas in the 



NOTES AND MEMORANDA 87 

West, followed by two leading manufaotaring States of the 
East, Massachusetts and New York — have passed acts to 
create or authorize such boards. A comparison of these four 
acts will illustrate the workings of the boards. 

In the first place, how and of whom are these boards to be 
composed ? By the acts of the two Western States, Kansas 
and Iowa, they are designated as tribunals, and are to consist 
of even numbers, to be composed half of employers and half 
of employes. These tribunals are to be licensed or author- 
ized by the district court of a county or by the judge thereof, 
upon petition in a prescribed form, by certain interested 
parties. In Kansas, the parties by whom such a petition may 
be signed are two, — either by five or more employes or ** by 
two or more separate firms, individuals, or corporations within 
the county who are employers within the county ^ ; and the 
board or tribunal is to consist of four men, to be named in 
the license. In Iowa, the petition must be signed ^by at 
least twenty-five employ6s," and by "four or more separate 
firms, individuals, or corporations within the county, or by 
at least four employers, each of whom shall employ at least 
five workmen, or by the representative of a firm, corporation, 
or individual employing not less than twenty men in their 
trade or industry " ; and the tribunal shall consist of not less 
than two employers or their representatives and two work- 
men or their representatives, each of the two classes always 
to have half of the full number, and they shall be named by 
the parties in their petition for a license for the tribunal. 
Finally, in both States, the courts have power, upon motion, 
to refuse the license if the representative character of the 
petitioners is found to be otherwise than as stated. In New 
York, the method of creation of the ordinary arbitration 
boards authorized under the act is much the same as in these 
Western acts. The board is first created by the appointment 
of two members by each of the contending parties and the 
selection of a fifth member by the first four. They are then 
licensed by the county judge, and, having given their consent 
to act, are ready for business. In Massachusetts, the act 
provides for a single State Board of three members, to be 
appointed yearly by the governor. One member must be 



88 QUABTSBLT JOURNAL OF ECONOMICS 

an employer or of some association representing employers 
of labor, one most be a member of some labor organization, 
and not an employer, and the third shall be appointed upon 
the recommendation of the other two; but, if they fiul to 
agree on the third man within thirty days, the governor shall 
appoint him. The act also makes it lawful for parties to 
a controversy who might apply to the State Board to agree 
upon a board of arbitration of their own choosing, which 
board shall have and exercise all the powers of the State 
Board, and have exclusive jurisdiction in the matters referred 
to it. 

In three, then, out of the four acts, the ordinary boards 
are given their authority by the county courts, and are of a 
local character. In the fourth, that of Massachusetts, where 
the board is created directly by the governor, the board has 
jurisdiction over the whole State. With the exception of 
the New York boards, the term of a board's existence is one 
year. In New York, the authority of a board ceases as soon 
as it has rendered a decision in the original submission, unless 
there have arisen and are in existence other grievances or 
disputes of a nature similar to the one for which the board 
was created, in which case the parties to such other disputes 
may submit them to the board; and the board shall have 
power as if originally created for such other disputes. 

In the matter of compensation, the Massachusetts act is 
the most liberal, allowing $5.00 a day for each day of actual 
service, in addition to all necessary expenses. Kansas allows 
$2.00 a day for each day of actual service. The Iowa act 
orders that the expenses of arbitration shall be met by volun- 
tary subscription! and the New York act makes no mention 
of any compensation whatever for its county boards. 

In all of the acts, submission of disputes or grievances to a 
board of arbitration is voluntary ; but the method varies as 
well as the cases which may be the subject of such arbitration. 
In Massachusetts, submission can only be made in case the 
question may not be the subject of a civil suit or a bill in 
equity, and then only in case it is a dispute between employes 
and an employer, whether an individual, copartnership, or cor- 
poration, who has at least twenty-five employes in the same 



NOTES AND MEMORANDA 89 

general line of work. The application for action by the 
State Board moat be signed by the employer or by a majority 
of his employ^ in the same general line of work, or their 
agent, or by both parties, and most contain a promise to con- 
tinae in the business or at work without lock-out or strike 
until the decision, if made within three weeks. In New York, 
submission may be made whenever any dispute arises between 
any firm, joint-stock association, company, or corporation, and 
its employes. Apparently there must always be joint action, 
because the first four members of the board to arbitrate must 
be appointed by the respective parties before application is 
made to the court for a license. The board presents its own 
petition to be established. In Kansas and Iowa, both parties 
must take action in the submission; and the tribunals are 
to act in settlement of disputes in the mining, mechanical, or 
manufacturing industries. Submission is voluntary, then, in 
all four States; and, in three, thb voluntary submission, as 
described, is the moving force for the very creation of the 
tribunals or boards of arbitration. 

In Kansas and Iowa, disputes arising in adjoining counties, 
as well as those in the county of origin, may be submitted 
to a tribunal of arbitration once created, at any time during 
the year of its duration. The tribunal sits at the county 
seat. In New York, although '^similar disputes" may be 
submitted to the ordinary boards when created, it is intended 
that they shall be local in their action. The Massachusetts 
board, which has jurisdiction in any part of the State, may 
travel from the scene of one dispute to another, holding its 
hearings in the towns where the disputes arise. 

New York is the only State which provides for an appeal 
from the decision of the board first hearing the case. For 
that purpose, a salaried State Board of arbitration of three 
members, to be appointed annually by the governor, one 
from each of the two principal political parties, and the third 
from a bona fide labor organization, was created. It is the 
business of this board simply to hear appeals from the local 
boards. These appeals must be made within ten days after 
the filing of the decision by the local board. The decisions 
of this State Board are to be final upon both parties. In 



90 QUABTEBLT JOURNAL OF ECONOMICS 

Massachusetts) the decisions of the State Board are final upon 
the parties who join in the application for six months, or 
until either party has given the other notice in writing of an 
intention not to be bound at the end of sixty days therefrom. 
In Kansas and Iowa, where the tribunab are composed of 
equal members, half being taken from each party, the possi- 
bility and likelihood of a futile termination of the arbitration 
by deadlocks in the tribunal have been guarded against by 
systems of umpires slightly different. By the Kansas act, the 
umpire is appointed by the court at the same time that it 
grants the license or authority to the tribunal; and this 
umpire shall be called upon to act only upon a disagreement 
by the tribunal at three consecutive meetings. Submission to 
him must be made in writing and signed by a majority of the 
tribunal or by the contending parties, and must contain con- 
sent that his decision shall be final. This decision he must 
make within five days from the time of submission to him. 
In Iowa, the umpire is selected by the unanimous vote of the 
tribunal. The other portions of the Iowa act relating to the 
umpire are essentially the same as in the Kansas act, except 
that he has ten days within which to make his decision. 

It is a natural question how the awards of these boards are 
to be enforced or of what force they are in themselves. The 
New York law simply provides that the awards of the local 
courts " shall be a settlement of the matter referred," and that 
the decision of the State Board for appeals shall be final and 
conclusive upon both parties to the arbitration. The Massa- 
chusetts act provides that the board shall advise the respec- 
tive parties what ought to be done to adjust the dispute, and 
make a written decision, a decision binding for six months, 
upon the parties who joined in the application or until either 
party has given the sixty days' notice spoken of above. Ift 
Iowa and Kansas, the award is simply ^ final and conclusive 
on the parties " in the ordinary cases of dispute ; but, when 
award is made and recorded of a specific sum of money, the 
proper court may, on motion, enter judgment thereon. 

Finally, the legislatures, in attempting to remedy the evils 
of constant disputes between employers and employ6s, seem to 
have taken but little notice of the numerous labor organiza- 



CORRESPONDENCE 91 

tions. In the two Western acts, no mention whatever is 
made of labor organizations ; and the difficulty is treated as if 
simply one between master and men. In Massachusetts, the 
only recognition of organized labor is in the provision that one 
of the three members of the State Board shall be selected 
from some labor organization. In New York, however, the 
organizations of laborers receive more distinct recognition. 
In making up the local boards, two members are to come 
from the employ^. The act reads: — 

When the employes concerned are members in good standing of any 
labor organization which is represented by one or more delegates in a 
central body, the said body shall have power to designate two of said 
arbitrators. ... In case the employes concerned in any grievance or 
dispute are members in good standing of a labor organization which is 
not represented in a central body, then the organization of which they 
are members shall have the -gower to select and designate two arbitrators 
for said board. 

And, of the three members of the State Board, one is to be a 
member of "a bona fide labor organization." But, even in 
New York, the disputes are spoken of not as disputes between 
labor unions and employers, but simply as disputes between 
** any employer and his employes." 

H. M. Williams. 



CORRESPONDENCE. 



Pabis, September, 1886. 
In reviewing the economic situation, the first thing to con- 
sider is the state of the finances. Now, the essential charac- 
teristic of the French finances is the continuous increase of 
the budgets. Thirty years ago, the French budget for the 
first time had reached the figure of two milliards of francs; 
and, some members of the legislative body crying out at the 
enormity of this figure, M. Thiers said : " Bid adieu to it, 
gentlemen. You will never see it again." In fact, we have 
never seen it again. And since that time we have bid adieu 
to the third milliard, also. I speak here, observe, only of the 
ordinary budget. We have, moreover, the extraordinary 



92 QUABTEBLY JOUBNAL OF ECONOMICS 

budget, which is very variable, but which increases oftener 
than it diminishes, and which for the current year represents 
in expenditure very nearly a half milliard. And, if to Uiis 
double budget of national expenses we add the local, depart- 
mental, and communal, which follow an equally rapid progres- 
sion, it is no longer the three milliards, but the four, which 
we have seen for the last time. 

Unhappily, the receipts no longer follow the same course 
as the expenditures ; and, since 1879, it is only by the most 
transparent artifices of accounting that it has been possible 
to mask the always increasing deficits of the budget. Or, if 
a balance has been secured, it has only been by disguised 
loans, which for the most part escape parliamentary control. 
These secret loans, increasing little by little the floating debt, 
have finally rendered indispensable the loan of one milliard 
of francs in three per cent, perpetual rentes^ which has been 
issued by authority of the Act of May 1, 1886. Of the pro- 
ceeds of this loan, only 105 millions are applicable to expenses 
which are still to be incurred, to complete the re-establish- 
ment of our military equipment. 

Beginning from 1880, it must be admitted, the situation 
has begun to be less favorable. The crisis has occurred, in- 
dustrial and commercial activity has slackened, exchanges 
with foreign countries have diminished, receipts from taxes 
have fallen below the estimates in the budget, and have 
declined from year to year. And yet the expenditures have 
not ceased to increase. By a strange economic and financial 
aberration, it seems to have been believed — in fact, was be- 
lieved — that, by spending much, it would be possible to give 
a new impulse to industry, to commerce, and to agriculture. 
Even at the hour when I write, it only begins to be under- 
stood that this was a mistake. There is now much talk of 
economy for the next fiscal year; but it is easy to see that 
the economy will reduce itself to some hundreds of thousands 
of francs, pruned from the budget of each ministry, that the 
great expenditures will go on, and that the supplementary 
credits will be kept up as before. I do not believe that we 
have yet reached the moment when le^lators and statesmen 
will decide to enter upon a path of serious economy. For 



CORRESPONDENCE 98 

that there would be neceflsaiy a political change of heart, 
of which nothing shows the approach. 

In the mean time, the country begins to complain. It finds 
the taxes too heavy ; and every class of tax-payers do their 
best to secure, if not suppression, at least diminution, of the 
charges which weigh particularly upon them. And so we 
have seen brought forward in the Chambers and in the press 
during some years past a crowd of projects tending toward 
the reform of our system of taxation. The greater part of 
these projects proceed from the Radical Socialistic party, and 
look towards the suppression of the indirect taxes, especially 
of the octroi duties, which have a considerable place in the 
budget of the great cities. At Paris, these duties on the 
average yield from 180,000,000 to 185,000,000 francs, having 
even yielded 150,000,000 m 1882. The octroi is represented 
as particularly burdensome for the laboring class. It is even 
charged with being an inversely progressive tax, increasing 
for every class of tax-payers in the inverse ratio of their abil- 
ity to pay. It is said, abo, that the octroi is a veritable inter- 
nal custom-house, — a barrier raised against the free circula- 
tion of merchandise. This last complaint is well founded 
only to a certain degree and in a certain point of view ; the 
other, however, only in appearance and in*the eyes of super- 
ficial observers. M. Paul Leroy-Beaulieu and other econo- 
mists, among whom I must name M. Ernest Brelay, have 
shown by authentic figures that the octroi is paid especially 
by the rich and well-to-do, who are the only, or almost the 
only, consumers of certain articles subjected to this tax, — as, 
for example, of building materials, hay and^ grain, and com- 
bustibles, — and who consume the greater part of the other 
goods taxed, especially of the wines and liquors and of the 
meats, in direct ratio, and not in inverse ratio, to their tax- 
paying ability. The adversaries of the octroi, moreover, 
reason as if this tax weighed equally upon all the town popu- 
lations. Now, in the first place, out of more than 86,000 
communes existing in France, there are only about 1,540, 
representing a total population of less than 1 12,000,000, who 
are subjected to the octroi ; and these are subjected to it vol- 
untarily. In the second place, in the great majority of these 



94 QUABTEBLT JOURNAL OF ECONOMICS 

oommanes, the goods which are taxed pay only insignificant 
duties upon their entry. Really, then, it is only Paris and 
perhaps a dozen large cities which find in the octroi any 
considerable addition to their taxes. It is easily understood 
that the more ignorant socialists, who are in the habit of con- 
sidering the workmen of the great cities as forming by them- 
selves << the people," should conceive a blind hatred against the 
octroi. But it is astonishing to see an economist like M. Yves 
Guyot, a deputy from Paris, carry on the campaign against 
the octroi with ardor, and demand its replacement by a tax 
not on the income, but on the selling value of real estate, 
whether built upon or not. 

Another economist, M. iSmile Alglave, Professor of Finan- 
cial Science at the School of Law in Paris, has recently made 
some noise with a project aiming to give to the State the mo- 
nopoly of wholesale dealing in alcohol. According to the cal- 
culations of M. Alglave, this monopoly should yield at least a 
million of francs, which would allow the suppression of the tax 
upon wines, and of some others selected from the most objec- 
tionable. But this singular and complicated project, which it 
would take me too long to explain here, has had no success. 
The socialists [did not understand it, and the economists and 
serious financiers were unanimous in rejecting it. Alcohol 
(already subjected here to taxes which have risen by succes- 
sive steps to the respectable figure of one hundred and fifty- 
six francs the hectolitre of pure alcohol) rates, however, in 
the eyes of some persons, as a commodity in some way indefi- 
nitely taxable ; and so we have seen, during the last legislative 
session, one deputy, M. Henri Germain (not re-elected last 
October), propose to the Chamber the suppression of the land 
tax upon agricultural property, and its replacement by a new 
additional tax upon alcohol. 

Among the projects for fiscal reform with which we have 
been occupied in France this year, I must not forget to men- 
tion the revision of the caddstre^ and what is called the equali- 
zation of the land tax, for the purpose of establishing what 
we have never had, an exact proportion between the land tax 
and the real income of land. This is not the first time, by 
any means, that this question has come up; but its solution 



C0BBE8P0NDENCE 95 

more and more seems to be about as chimerical as the quadra- 
tare of the circle. The revision of the cadastre is an operation 
which would require several years, and its results could never 
present anything more than a comparative and temporary ex- 
actness ; for the revenue of land, often very difficult or even 
impossible to estimate at a given moment, may vary seriously 
from one year to another. I must say, however, that the 
Director-General of direct taxes, M. Boutin, published, two 
years ago, a large graphic atlas containing all the elements 
for as exact an estimate as possible of the income from prop- 
erties not built upon. This is a fine piece of work, done with 
the greatest care, and certainly valuable for economists and 
statisticians ; but I doubt whether it can serve as a basis for a 
new and equitable apportionment of the land tax. 

In the mean time, of all the fiscal reforms which can be pro- 
posed, the only really beneficent one would be that which con- 
sisted, not in making the weight of the public charges press 
upon certain classes of citizens rather than upon others, but in 
lightening the charges by successive remissions. Unhappily, 
this sort of reform would require, as an essential condition, a 
considerable reduction of expenses ; and, to effect this reduc- 
tion, it would be necessary to give up the errors of what is 
called by the new name (although the thing itself is as old as 
the world) of State socialism, which are the principal causes 
of the inflation of the budget, — aside, that is to say, from 
purely political causes, such as the necessity imposed hence- 
forth upon all the peoples of continental Europe of maintain- 
ing armies and the material of war on an increasing scale. 

State socialism, it is well known, is a method, a policy, rather 
than a doctrine. Indeed, it is repugnant to everything like 
doctrine. It has the pretension of being, above all, practical^ 
and of holding itself on its guard against absolute systems. 
Its advocates, who dislike the name, contend that the State 
should not hold aloof from anything, that nothing is done 
well, and especiaUy nothing great, if the State does not take 
a part; and that certain great affairs, being of general or na- 
tional interest, can be well managed only by the State. They 
maintain, also, that the State should give solicitous attention 
to everything which concerns the well-being of the laboring 



96 QUABTSBLT JOUBNAL OF ECONOMICS 

class, withoat neglecting, however, the prosperity of industry, 
of commerce, and especiaUy of agriculture, or, indeed, of any 
branch of national labor. But what principles, what rules, 
should guide public authority in the accomplishment of so 
vast and complicated a task, nobody can tell. As regards 
principles, equality and solidarity are invoked, which every 
party and every sect understands in its own way. As regards 
rules of conduct, there is no other than to satisfy, so far as 
possible, the electing body, which, henceforth, is the sovereign. 
But, as the electing body is composed of very diverse ele- 
ments, the difficulty is solved by taking so far as possible a 
mean between the extremes. The course really pursued, 
then, is one of complete empiricism and of thoroughly arbi- 
trary determination; and men are happy when they can 
fasten upon some dogma universally admitted by all fractions 
of the democratic party, such as that which confers upon the 
State the high duty of distributing instruction in all degrees 
and under all forms to all classes of society. 

It is by the application of this dogma that education has 
become, in the hands of the State, the most formidable and the 
most costly of monopolies. It is admitted, without any one 
venturing to contradict, that the first duty of the democratic 
State is to scatter with free hands every kind of instruction, 
— except religious instruction, which must be rigorously ban- 
ished from the schools, from the It/cSes^ and from the faculties, 
and confined to the churches. I say that education is a mo- 
nopoly of the State. It is also a sacred function ; and the edu- 
cating body, having at its head the ministry and superior 
council of public instruction, is a veritable lay church, which is 
rising up over against the religious churches, and especially 
the Catholic Church. But, as it has not been possible to 
legally suppress liberty of education, it has come to pass that 
the Catholic Church, always rich and strong, has mamtained 
its schools and its universities in competition with the State, 
and that it is the free lay instruction which alone has almost 
completely disappeared. 

State socialism has shown itself, moreover, in the exagger- 
ated extension of great public works under the famous Frey- 
cinet plan, the complete execution of which it was necessary 



C0BBE8P0NDENCE 97 

to give up, and in the creation of a so-called experimental net- 
work of State railways. If an experiment was all that was 
really desired, it might now be regarded as conclusive ; and it 
would be necessary to cede to companies quickly and at any 
cost the fragments of which this network is composed. But, 
in reality, the wish was to have in hand a practical instru- 
ment for the elections ; and that is the sole reason for exist- 
ence of the State network, and not a good reason. 

In the industrial and commercial order of things, State 
socialism has for its principal expression the protectionist 
policy, — not, I repeat, in virtue of any system, but for the 
simple reason that there is no middle course between free 
trade and protection ; and, when the first is rejected, on the 
pretence that it is an absolute system, you come necessarily 
to the second, which its partisans are careful not to build up 
theoretically as a system, contenting themselves with calling 
for it in the name of national interests. Thus it is that the 
agriculturists and manufacturers demand protection against 
the competition of English and German industry, and against 
the invasion of agricultural products from the United States, 
from India, and from Australia. The workmen themselves 
wish to be protected against the competition which Belgian, 
Italian, German, and Swiss workmen keep up in France itself. 
For the time, the manufacturers have obtained all that they 
could, — a general tariff, under which the duties of 1860 have 
been increased by thirty per cent, and upwards, and the rupt- 
ure of the treaty of conmierce with England. The manufact- 
urers of sugar obtained in 1884 for the period of three years 
an additional tax of seven francs the kilo on raw sugars com- 
ing from European countries and ports. This year, they 
have obtained the extension of this tax for a new period of 
three years. They asked also for the extension of the tax 
to foreign colonial sugars, but the Chamber thought that it 
had granted enough ; and, for the moment, they had to be 
content with the extension of time. It is well to say that 
the plainest effect of our legislation upon sugars has been to 
diminish our exports of raw and refined sugars by 89,000,000 
francs since 1877. 

I come now to the agriculturists. Formerly, the agricultur- 



98 QUARTEBLT JOUBNAL OF JSC0N0MIC8 

ists of France were free traders. They had no foreign com- 
petition. But, for some years, the immense development of 
the cultivation of wheat and of the rearing of stock in the 
United States, and the reduction to cultivation of a vast ex- 
tent of ground in India and in Australia, with the facility and 
the low cost of transportation, have brought great quantities 
of foreign agricultural products into the European markets. 
However, the importation of cattle into France is not consid- 
erable : it is almost non-existent. But our cattle-raisers have 
acted as if this importation threatened them with ruin, at the 
same time that the cultivators of wheat declared that they 
were reduced to misery by the competition of American 
wheat. The truth is that the importation of foreign wheat 
into the European market, and especially the French market, 
coincides with what is commonly called the agricultural crisis ; 
that is, the fall in rents and in the selling value of land, 
which has succeeded the continuous rise of several years pre- 
vious. Moreover, the development of industrial labor and 
the great works undertaken by the State and by cities have 
brought about a steady emigration of peasants to the cities 
and a rise in agricultural wages, which, in some regions, is 
from two to three hundred per cent. Finally, agricultural 
science has made little headway in the country, and the 
methods of cultivation are backward, so that the return by 
the hectare is small (fourteen hectolitres on the average), and 
the cost of production excessive. These are the true causes 
of the suffering of which the agriculturists complain ; but, 
instead of tracing the thing back to its causes, and relying 
upon their own energy, they have neither seen nor wished 
to see anything except the foreign competition. They de- 
manded of the parliament that it should protect them from 
this competition by higher taxes upon all foreign agricultural 
products. Now, of two things, one, — either the additional 
tax must be light, and then its protective effect must be noth- 
ing, or it must be heavy, and in that case must result in mak- 
ing subsistence dearer, which is not an admissible course 
under a republican government. In this case also, then, a 
middle course has been taken. Some insignificant taxes have 
been granted to the agricultural protectionists, in order, it is 



C0BRE8P0NDENCE 99 

said, to give them a " moral satisfaction." This " moral satis- 
faction " has been weak, the material effect of the tax being 
slight, and the sufferings of agriculture being neither more 
nor less than before, as the economists had predicted. The 
protectionists then returned to the charge this year, demand* 
ing a new increase of tax, which would have raised the price 
of wheat by thirty per cent. ; but they had to do with a new 
Chamber, where the radical element has an important place. 
Now, the radicals in general are free traders, and especially 
they do not mean that the subsistence of the laboring popula- 
tion should be made dearer for the gratification of the great 
farmers and rural proprietors. The project submitted to the 
Chamber, after a brilliant discussion, was therefore sent back 
to the committee, which was equivalent to rejection, pure and 
simple. 

In view of this attitude taken by the great manufacturers, 
cultivators, and rural proprietors, we must not be surprised 
that the workingmen have also demanded to be protected. 
The first class wished that the State should insure them good 
profits and good rents by protecting them against the com- 
petition of foreign goods. But when the workingmen com- 
plain of the competition which their Belgian, Gterman, Swiss, 
and Italian brethren keep up in France itself, the most pro- 
tectionist of employers become free traders without thinking 
of it. For they find it a good thing to employ, and even to 
call in, these foreign workmen, to whom they pay lower wages 
than to French. The latter demand naturally that the State 
should protect them against their employers, by whom they 
complain that they have been exploited. I believe that the 
case is the same in all countries. But what our workingmen 
have obtained so far from the republican parliament comes to 
very little. Numerous projects have been presented for their 
benefit ; very few have been finally voted. The most impor- 
tant is that which authorizes the formation of trade syndicates, 
which had already existed for some years, thanks to toleration 
by the government. But, although the employers have formed 
important syndicates, which have rendered good service, the 
workingmen have profited very little by the new advantages 
which the law allows them. There are to-day in France hardly 



100 QUARTERLY JOURNAL OF ECONOMICS 

more than three hundred societies bearing the title of syndical 
chambers of workingmen. They represent altogether only a 
trifling minority among the real laborers; and the socialist 
politicians who manage them nse them chiefly in organizing 
strikes, almost always ill-timed. These chambers, therefore, 
are looked upon unfavorably by the employers, who, when 
they have to dismiss workingmen, always choose by prefer- 
ence men who are connected with these syndicates. 

These exclusions are the cause of the greater part of the 
strikes which we have had for the last two years, especially 
that of the coal mines of Anzin, which was the most consider- 
able. As for the famous strike at Decazeville, — especially 
famous because it began by the murder of the engineer Wat- 
rin, who was an object of hatred to some of the leaders, — that 
was altogether an artificial strike which no real grievance 
justified. Nevertheless, it lasted for several months, simply 
because it was kept up by the efforts of professional dema- 
gogues, and supported by abundant subsidies, of which the 
municipal council of Paris supplied a part at our expense. 
The radical socialists of the Chamber took the occasion of this 
strike to invite the government, not only to intervene in the 
affair and to support the workingmen against the company, 
but also to deprive the company of its property, and to 
commit the management of the property to the hands of the 
associated workmen. This extravagant demand met its de- 
served fate, and the government was able to say with truth 
that the law did not allow it to do what they asked. 

The strike of workmen of the Soci6t6 du Materiel Agricole 
of Vierzon, which is going on at this moment, was caused 
by the dismissal by the company of a certain number of 
workmen whom it could no longer employ, one hundred and 
forty out of two hundred and eighty. The workmen who 
were dismissed have undertaken to compel the company to 
retain all its men, employing them but three or four days a 
week and for but five or six hours a day. The company con- 
sented to keep one hundred and forty men, and could do no 
more. Those thrown out of work then used menaces and 
violence to lead the others to desert the workshops, and suc- 
ceeded, in spite of the efforts of the authorities to compel 
respect for the liberty of labor. 



CORRESPONDENCE 101 

I shall not dwell upon some other strikes of less importance 
which have occurred. On the whole, we can say that France, 
in this respect, is much more favored than the other great in- 
dustrial nations, in spite of the complete liberty of meeting, of 
association, of speech and press, which has existed here now for 
ten years ; in spite of the deplorable support which the least 
justifiable of the demands of the workingmen secure in one 
section of parliament and in certain of the municipal councils, 
especially in that of Paris. The country, as a whole, enjoys, 
under the republican government, an internal peace which 
no other rule has ever given to it. I can say as much as 
regards external peace, in spite of the noise which extreme 
partisans have made with respect to the expeditions to Ton- 
quin and to Madagascar. It is absurd to compare these ex- 
peditions with that of Mexico, which was one of the most 
disastrous follies of the imperial rigime. 

It is, however, a question much controverted among states- 
men and among economists whether France ought or ought 
not to extend her foreign possessions. This question has 
given occasion, not only in the Chamber and in the Senate, 
but in the Society of Political Economy, for brilliant debates, 
having a high degree of interest. For my own part, I am 
one of those who think that a great maritime power like 
France ought to make herself felt in every part of the globe, 
that she has her part to play in the general work of civiliza- 
tion and in the improvement of barbarous and savage coun- 
tries, that she belittles herself and condemns herself to a hu- 
miliating situation, if she lets herself be supplanted everjrwhere 
by rival nations. Certainly, colonization is an ambition which 
requires sacrifices ; but, in everything, progress is secured only 
at this price. The more and more feeble increase of the pop- 
ulation of France, and the indisposition of most French people 
to emigrate, are no serious objections. It does not require 
many men to establish prosperous colonies of exploitation, alto- 
gether distinct, it must be remembered, from colonies of pop- 
ulation : it requires simply an able, firm, and honest colonial 
policy. If our policy has sometimes failed in the two former 
qualities, and especially the second, at any rate no one can 
deny it the third, which is not the least important. To those 



102 QUABTEBLT JOURNAL OF ECONOMICS 

who deny that France has the colonizing genius, an effective 
reply has been made by referring to the profound and unalter- 
able attachment of our fellow-citizens in the colonies for the 
mother land ; and what we have done in Algeria, what we are 
doing at this moment in Tunis, sufficiently shows that our 
domination or our protection may be in fact a benefit to peo- 
ples subjected to them, and abo an advantage for the mother 
country. This question of colonization is treated in a mas- 
terly way and under all its aspects in the work of M. Leroy- 
Beaulieu, Le CokmizcUian chez lea Peapies Modemes^ of which 
the third edition has appeared this year. It is treated also 
with much talent and with an enlightened sentiment of pa- 
triotism by a young publicist, M. Louis Vignon, in the volume, 
also published this year, with the title l/es Colonies Fran^iaee. 
In concluding this incomplete sketch of the present situa- 
tion, it must be said that the condition of things no doubt 
is far from being what one might desire ; and I have not hesi- 
tated to indicate the weak points. But it would be unjust 
to judge it too severely. The economic education of the 
French nation is yet to come. France has remained socialistic 
at bottom, in this sense : that she does not yet understand that 
anything can be done in the economic order of things or in 
the moral order without the intervention of the State. But 
the great majority of our population hold in horror the doc- 
trines professed by the fanatics. France is, as Leroy-Bf aulieu 
recently said, in the socialist state of mind, although she 
hardly knows what socialism is. She knows as little, it is 
true, what political economy is, although instruction in this 
science has made great progress within a few years past. 

Abthub Mangin. 



RECENT PUBLICATIONS UPON ECONOMICS. 



[Chiefly publiihed or amMmnoed from June to October, 1886.] 



L GENERAL WORKS, THEORY AND ITS HISTORY. 



BowKXB (R. R.). Economics for 
the People, being Plain Talks on 
Economics, pp. vi, 240. 16mo. 
Cloth. 75 cts. 

Clabks (C. B.). Speculations from 
PoliUcal Economy. London and 
New York : Macmillan & Co. 
8vo. $1.00. 

Dakson (J. T.). The Wealth of 
Households. Oxford : Clarendon 
Press. 

DiFFBET (A. de). Gedanken uber 
National-oekonomie, Politik, Phi- 
losophic. Part lY. Heidelberg : 
Borow. 1.80 m. 

Fayxau (O.). Etudes sur les Pre- 
miers Principes de la Science 
ticonomique. Paris. 

Hbbtzka (T.). Die Gesetze der 
Sozialen Entwlckelung. Leipzig : 
Duncker & Humblot 8yo. 8 m. 

Mabx (K.). Capital. Translated 
by F. Engels. London : Swan, 
Sonnenschein & Co. d. 8yo. 

Philippovich (E. von). Ueber Auf- 
|Abe und Methode der Politischen 
Oekonomie. [Eine Akademische 
Antrittsrede.] Freiburg: Mohr. 
pp. 65. 1 m. 

Rbsch (P.). Die Entwlckelangs- 
stufen der Yolkswirthschaft. 
Studie. Gratz : Moser. 3 m. 

ScHABFBB (W.). Die National 
Oekonomie und die Neuere Ge- 
setzgebung. ^rize essi^ of the 
University of Breslau.] Hanover : 
Schmarl <ft Seefeld. 8vo. pp. 95. 
1.50 m. 

SOHOKNBBBO (G.) [Editor]. Hand- 
buch der Politischen Oekonomie. 
Second enlarged edition. 15-20 
Lief. Tubingen : Laupp. 8vo. 
Per Lief, 2 m. 

SOIENCB EOOXOMIO DiSOUSSIOIf. 

By H. C. Adams, R. T. Ely, A. T. 
Hadley, E. J. James, Simon New- 
comb, Simon N. Patten. K R. A. 
Seligman, R. M. Smith, F. W. 



Taussig. With an introduction 

by R. T. Ely. New York : The 

Science Co. Paper. 50 cts. 
SupiNO (OX n Capitale neU' Or- 

nnismo Economico. Milan : U. 

HoeplL 
Wachbnhusbn (O.). Grunds&tze 

der Nationalismus und der Social- 

demokratie. Leipzig: O. Wigand. 

8vo. pp. 152. 2 m. 
WiBMmoHAUs (A.). Zwei Span- 

ische Merkantilisten f Geronimo de 

Uztariz und Bernardo de Ulloa). 

[Sammlung des Seminar zu Halle. 

von Conrad. Bd. IV., Heft 2.J 

Jena : Fischer. 2.50 m. 

In Periodical. 

Bobhm-Bawbbk (E. von). Grund- 
ziise der Theorie des Wirthschaft- 
lichen Guterwerths. Jahrb. f. 
Nat. Oek., 18, Heft 1, 2. 

DiBTZBL (H.). Das "Problem** 
des Litterarischen Nachlasses von 
Rodbertus-Jagetzow. Jahrb. f. 
NatOek., 13, Heft 8. 

JoLLBS (O.). Die Ansichten der 
Deutschen National-oekonomisten 
des 16ten u. 17ten Jahrhunderts, 
fiber Bevolkerungswesen. Jahrb. 
f. Nat Oek., 13, Heft 8. 

Lbhb (J.). E. Marx, das Kapital, 
Eritik der Politischen Oekonomie; 
Vierteljah. f. Volksw., Jahrg. 23, 
Band IL, 2. [Continued from 
U., 1 ; concluded in UL, 1.] 

Nassb (E.). Entwlckelung tmd 
Krisis aes Individualismusin Eng- 
land. Preuss. Jahrb., 57, Heft 5. 

RoxoALi (A.). Un Sistema di Sod- 
ologia. Giom. degU Economisti, 
July. 

YmoiLio (J.). L' Evoluzione nel 
Campo Economico. Giom. degli 
Economisti, July. 

Wolf. Zur Lehre vom Wert, 
Zeitsch. f. gesam. Staatsw., 42. 
Heft 8. 



104 



QUABTERLT JOURNAL OF ECONOMICS 



n. ECONOMIC mSTOBY AND DESCRIPTION. 



Beso^basof (W.). titodes sur 
r Economie Natlonale de la Ros- 
sie. St Petenburgh. 2yoL dm. 

BiOLLAT (L.). Etudfes £conomlque8 
sur le XYin. Si^cle. Les Prix 
en 1790. Parla: Gnillanmln. 8yo. 
6fr. 

BoccABDO (G.). Manuale di Storia 
del Commercio, delle Industrie e 
deir Economia Politica. Torino, 
Napoli lOmo. 

BoBCKH. Die Staatshanshaltong 
der Athener. 8te Aufl., heraus- 
gegeben mit Anmerkungen von 
M. FrankeL Berlin: G. Reimer. 
Bande 1, 2. 8yo. 80 m. 

Clevblakd (R. J.). Voyages of a 
Merchant Navigator of the Days 
that are Past. Compiled from the 
Journals and Letters of the late 
R. J. Cleveland, by H. W. S. 
Cleveland. New York: Harpers. 
pp.245. 12mo. $1.25. 

FuBBBB (A.) [Editor]. Volkswirth- 
schafts-Lexikon der Schweiz. 
[Urproduktion, Handel, Industrie, 
etc J Bern: Schmid, Francke A 
Co. Bd. 7, Lief. 5-«, pp. 321-640. 
Svo. Per Lief, 1 m. 

Gebbino. Handel und Industrie 
der Stadt Basel. Zunftwesen und 
Wirthschaftsgeschichte bis zum 
Ende des XYU Jahrhunderts. 
Basel: Schneider, pp.678. 8vo. 
15 m. 

Pauliat (L.). Louis XTV. et la 
Compagnie des Indes Orientales 
en 1664. Paris: Calmann L^vy. 

Smith (S.). India Revisited: Ito 



Social and Political Problems. 
London: W. Isbister. 
Taylob (R. W. C). An Introduc- 
tion to a History of the Factory 
SystenL London: BentleyASon. 
d. 8vo. 16s. 

In PeriodicaU. 

Baudsillabt (H.). Les Popula- 
tions Rurales de la France. La 
Touraine. Rev. des Deux Mondes, 
Aug. 1. 

Bbauoahub (Yicomte R. de). Con- 
dition of the Agricultural Popula- 
tion in Germany. [Translated.] 
Joum. of Stat. Soc, June. 

ScHMOLLEB (G.). Studieu uber die 
WirthschaftUche PoUtik Fried- 
richs des Grossen und Preussens 
uberhaupt von 1680 bis 1786. 

IX. DieFinanzielleYerwaltung 
Magdeburgs. Jahrb. f. Gesetz., 
10, Heft 2. 

X Die Preussische Wirth- 
schaftspolitik im Herxogthom 
Magdebure, hauptsachlich das 
Transitzollsystem. Ibid,, Heft 8. 

Wachsmuth (C). Ein Antiker 
Seeplatz. Jahrb. f . Nat. Oek., 18, 
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Wolf (J. ). Zuckersteuer und Zuck- 
erindustrie in den Europaischen 
Landem und in der Amerikan- 
ischen Union von 1882 bis 1885. 
Finanz-Archiv, 1886, Band L 

ZsLLBB. Gewerbepolitische Strom- 
ungen in Oesterreich-Ungam. 
Yierteljah. f. Yolksw., Jahrg. 23, 
BandllL, 2. 



m. POPULATION, EMIGRATION, AND COLONIES. 



Bbattk (E.). Die Eolonisationsbe- 
strebungen der Modemen Euro- 

faischen Yolker und Staaten. 
Yolkswirthschaftliche Streitfra- 

gen, 58.] Berlin: L. Simion. 

pp. 89. 1 m. 
Chakpentikr (D.). Entwickel- 

ungsgeschichte der Kolonialpo- 

lit& des Deutschen Belches. 

Berlin : Bahr. 8vo. pp. iii, 88. 

2m. 
NoBMAN (C. B.). Colonial France : 

Its History, Administration, and 

Commerce. London : W. H. 

Allen A Co. [Announced.] 



SoETBBEB (H.). Die Stellung der 
Sozialisten zur Malthus'schen Be- 
Tolkerungslehre. [Prize essay at 
Gottingen.] Berlin : Puttkam- 
mer & Miihlbrecht. 4to. 5 m. 

Tallquist (J. v.). Recherches 
Statistiques sur la Tendance k une 
moindre F^condlt^ des Mariages. 
Helsingfors. 

YiONON (L.). Les Colonies Fran- 
daises, leur Commerce, leur Situ- 
ation, leur Utility pour la M^tro- 
e)le, leur Avenir. Paris : GuU- 
umin. 8vo. 6 f r. 



RECENT PUBLICATIONS UPON ECONOMICS 



105 



In PeriodicaU. 

GsissTBB (A.). Die Beweffong der 
Beyolkenme im Eonigreiche Sach- 
sen wahrend 1884. Zeitsch. Sachs. 
Stat Bur., 31, Heft 3, 4. 

HAMMBBSTsm (A. yod). Die Zn- 
kunft der Eolonien nach eigener 
Fonchong. Deutsch. Rev., Aug., 
Sept 



Reiohskomkissar f Ur das Auswan- 
derungswesen, Bericht (for 1884). 
Annal. des Deut Reichs, No. 10. 

Stonk (R.). Notes on the Progress 
of New Zealand, 1864-84. Joum. 
of Stat Soc, Sept. 

TuBQUAN (V.). Repartition G^o- 
graphique et Density de la Popula- 
tion en France. Joum. Soc. de 
Statis. de Paris, Aug. 



IV. PRODUCTION, MANUFACTURES, AGRICULTURE. 



BEBTAeNOLLi (C). L' Ecouomia 
deir Agricoltura in Italia e la sua 
Trasformazione Secondo i Dati 
dell' Inchlesta Agraria. Rome. 

BBAim (A.) AND Ebbjcsi (I.). 
Der Hausfleiss in Ungam im 
Jahre 1884. Leipzig : Falk. 

GoBBUNOFP (W.). Ueber Rus- 
sische Spitzenindustrie. Ein Bei- 
trag zur Geschichte der Hausin- 
dustrie. Vienna : Piehler. 8yo. 



pp. 51. 1 m. 

}^UKB 



GuKBiN (U.). Cultivateur-marat- 
cher de Deuil [Seine-et-Oise], Pro- 
pri^taire Ouvrier. Paris: Flrmin, 
bidot & Cie. 8vo. 

Hbtbb. Obstbau und Obstnut- 
zung in die Vereinigten Staaten 
yon Amerika. Berlin : Parey. 
8yo. 3 m. 

Semmleb. Die Tropische Agricul- 
tur. 1 Bd. Wismar : Heinstorff. 
8yo. 15 m. 



In Periodieals. 

Clebkb (E. M.). The Future of 
Petroleiun. Dubl. Rev^ July. 

Lbbot-Beaulibu (P.). ues Yraies 
Hoyens de secourir 1' Agriculture 
en France. Economiste Fran- 
Qaise, July 10. 

OcHENKOWSKi (W. von). DicWiir- 
tembergische Zentralstelle fur 
Handel und Gewerbe. Ein Bei- 
trag zur Organization der OefFent- 
lichen Handelspflege. Jahrb. f. 
Gesetz., 10, Heft 2. 

S0HI.IEBEN (R. von). Untersuch- 
ungen iiber das Einkommen und 
die Lebenshaltung der Handwe- 
ber im Bezirke Zittau. Zeitsch. 
Sachs. Stat Bur., 81, Heft 3, 4. 

Stieda (W. ). Russische Schafhal- 
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V. EXCHANGE AND TRANSPORTATION. 



Bibkmybb (W.). The Revival of 
Trade by the Development of 
India. Gla^w: R. Anderson. 

Deutsches Reicha-Eisenbahx- 
Amt. Uebersichtliche Zusam- 
menstellung der Wichtigsten 
Angaben. 4 Bd. [Years 1883-84 
and 1884-^.] Anhang. Beriin: 
Mittler A Sohn. Fol pp. 149. 
3 m. 

DuvEBOiEB (V. ). Chemins de Fer 
de I'Etat Beige, leur Histoire 
d'apr^s les Demiers D^bats Parl^ 
mentaires. Paris: Guillamuin. 
Pamph. pp. 80. 1 fr. 

Ellison (T.). Cotton Trade of 
Great Britain, including a History 
of the Liverpool Cotton Market 
and of the Liverpool Cotton Brok- 
ers' Association. London: Effing- 
ham Wilson. 8vo. pp. 360. 15s. 



HuBEB. Die Ausstellungen und 
imsere Export Industrie. Stutt- 
gart: Neff. 8vo. 4.50 m. 

SCHBADEB (O.). Linguistisch-his- 
torische Forschungen zur Han- 
delsffeschichte und Warenkunde. 
Theill. Jena: Costenoble. 8 m. 

SwANN (J.). An Investor's Notes 
on American Railways. New 
York and London: G. P. Put- 
nam's Sons. 

Thoviste (M.). Etude sur les Con- 
ventions Financi^res conclues 
entre I'^tat et les Compagnies de 
Chemins de Fer. Paris. 8vo. 
pp. 297. 7 fr., 50 c. 

Ulbich (F.). Das Eisenbahntarif- 
wesen [and its Development in the 
Continental Countries and Eng- 
land]. Berlin: Guttentag. pp.504. 
8vo. 10 m. 



106 



QUABTEBLT JOUBNAL OF ECONOMICS 



In PeriodieaU. 

CoHK (G.)- Erorterangen fiber die 
Fiskalische Behandlung der Yer- 
kehraanstalteiL Jahrb. f. Qe- 
setz., 10, Heft 8. 

HsBBiCKS ( F. ). Die Telemphie in 
Berlin. Das Femsprecnerwesen. 
Nord and Sud^ng. and Sept. 

ScHWBiTZBB (W.). Die JEisen- 
bahnen in Brasilien. ViertelJalL 
f. Yolksw., Jahrg. 28, Bd. IIL, 2. 



UirsioinED. Street Railroads in the 
United States [more especially on 
the Conditions under which their 
Charters were granted]. Brad- 
street's, VoL XIII., p. 868 (May 
29). 

UirsioinBD. Modem Trade and 
the Means of Exdiange. Edinb. 
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Unsignbd. Home Railways (A 
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VL INTERNATIONAL TRADE AND CUSTOMS TARIFFS. 



Bbbtt (S.). Free Trade : Oobden, 
Briffht, Gladstone, Fawcett, etc 
Collated and examined. London: 
Effingham Wilson. 

DuAPER (G.). Some Views on the 
Tariff Question, by an Old Busi- 
ness Man who believes in the 
American Market for the Ameri- 
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good. 8vo. pp. 45. 

Edbn (F. M.). Free Trade. Lon- 
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In PertodieciU. 

AuFSBSS (Frhr. von). Die Z511e und 
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GooDNow (F. J.). The Collection 
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Kajjtuaws, Der Mitteleuropa- 
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liEBOT-BEAULiBn (P.). Les Con- 
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Lbbot-Bbaulieu (P.). Commerce 
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Mamboth (K.). Das Projekt eines 
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Vn. FINANCE. 



Bbblay (E.). L' Octroi, ses Incon- 
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Chaillet (J.). L'Impdt sur le 
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Clebcq (P. H. de). Les Finances 
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Cuchbval-Clabiony Essai sur 
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prunto d'etat Paris: Guillaumin. 
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FoBBSTEB (E.). Die Reform der 
Branntweinsteuer. Berlin : Parey. 
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Gebmann (H.). Die Branntwein- 
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Jahz^ (A. de). Les Financiers 

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Rbynaud (L.). L'Ann^e Finan- 

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3 f r. , 60 c 
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ao4. 

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Ai>AM8 (H. C). American War- 
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Mandello (K). Studlen iiber 
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VIIL MONEY, BANKS, AND CREDIT. 



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Babboub (D.). Theory of Bimet- 
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Haupt (O.). L'Histoire Mon^taire 
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HoARB (H.). The Appreciation of 
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Depression of Trade. London: 
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Jordan (W. L.). The Standard of 
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JuoLAR (C). Les Banques de 
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Guillaumin. Ito. 3 f r. 

Ebamab (K.). Das Papieraeld in 
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Hayeb (J.). Ein Beitrag zur Los- 
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4m. 



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Rauchbebo. Das Clearing nnd 
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Schmidt (H.). The Silver Qnestion 
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Struck (K). Skizze des Eng- 
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Walbas (L.). Th^orie de la Mon- 
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Banquk de Fbaitce. Compte 
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CouBCBLLE-SEirEUiL. La Crise 
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Gabtneb (F.). Beitrage zur Lehre 
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Lee (A. E.). Bimetallism in the 
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Levi (L.). Progress of Joint Stock 
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Lexis (W.). Neuere Schriften iiber 



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Babns rW. E.). The Labor Prob- 
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Batles (J. C.) [Editor of the Iron 
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Behrsnds (A. J. F.). Socialism 
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Bbown (T. E.). Studies in Modem 
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CouBCT (A. de). Le Droit et les 
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Gladden (W.). Applied Christi- 
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Obaham (W.). The Social Prob- 



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HiB8CH(M.). DieHauptsachlichsten 
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Mills (H. ). Poverty and the State ; 
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London: Kegan Paul, Trench A 
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Newoomb (S.). a Plain Man's 
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Phipson (C. B.). The Redemption 
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Reitzeksteik (Baron von). Ueber 
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Sabtobius v. Waltebshausrn 
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Savaoe (M. J.). Social Problems. 
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Schoenbebo (G. ). Die Soziale Poli- 
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Sozial-Demokbatib, die, vor dem 
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phischer Bericht der Yerhand- 
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Unobb (S.). Fortschritt und So- 
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110 



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YiLLABD (A.). Histoire da Prol^ 
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WiLKiNSOK (J. F.). The Friendly 
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WiLLHEiM (A.). Die Verstaatllch- 
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WiBMiKGHAUs. Das Uutemehmen, 
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Wolff (M. P.). On the Rational 
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In PeriodicaU. 

AoHAUD (A. H. D.). Land, Labor- 
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ABBBrrsR-FBEUND^ der. Organ des 
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Bebtagitolli (E.). Gli Scioperi 
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Bebthold (G. ). Die Deutschen Ar- 
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BoHMEB (Von). Die Lohnverhalt- 
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BuxHOEVDEN (Baron O. von). Die 
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Dehk (P. ). Zur Theorie imd Praxis 
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DoBMOT (E.). Projet d'une Caisse 
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HmscHBEBQ (E.). Lohne der Ar- 
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Lbbot-Beaulixu (P.). La Mine 
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LoBiA (A.). Nota sulla Concor- 
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Manoin (A.). Le Progi^ £cono- 
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KAHonr (A.). Le Frogrte des 
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HoLiNABi (G. de). La Guerre 
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MUBKSTBBBEBO (E.). Das Eug- 
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QuABK (M.). Der Erfolg der Ar- 
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RosMnn (C). II Giuooo del Lotto 
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SALMOif (E. G.). What the Work- 
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X. LAND. 



Anonymous. Land Concentration. 

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RECENT PUBLICATIONS UPON ECONOMICS 



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mangel, die Uebereiedelung, nnd 
die LjBkndwirthschaftliche, O^ono- 
mische und Commercielle Krisis 
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HiLLON (A.). La Crise Agricole. 
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Onslow (Earl of). Landlords and 
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Richland. Die Losnng der Land- 
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ScHLiTTB (B.). Die Zusanmienle- 
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Shosaki Sato. History of the 
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In PeriodiedU. 

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Elton (C. L). Early Forms of 
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RuHLAND. Der Gedanke Korpora- 
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Unsionbd. Allotments and Small 
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Judicial Rents. Statist. Sept. 11. 
A New View of Rc^tra- 



tion of Title to Land. Westm. 
Rev., July. 
Wi88 (E.). Die Forderungen der 
AgrarierunddieGrundrente. Vier- 
teljah. 1 Volksw., 23, Band II., 2. 



XL LEGISLATION. 



Bacheb (O. ). Die Deutschen Erb- 
schafts und Schenkungs-steuem. 
Leipzig: Duncker A Humblot 
4.80 m. 

Haioh (H. a.), a Plain Statement 
of the Laws [of Michigan | relat- 
ing to Labor. Detroit: Coopera- 
tive Publishing Co. 35 cts. 

Hoffmann (L.). Die Gewerbever^ 
fassung des Deutschen Reiches 
systematisch dargestellt Er- 
langen : Deichert 8vo. 2 40 m. 

Nbum ANN (F. J. ). Das Oeffentliche 
Interesse mit Bezug auf das G^ 
btihren und Steuerwesen, die Ex- 
propriation und die Scheidung von 



Privat und OefFentlichem Recht 
AnnaL des Dent Reichs, Nos. 5, 6. 

In PeriodicaU. 

BoBOHT (R T. d.). Ueber die 
Durchfilhnmg des Unfallversich- 
erungsgesetzes vom 6 Juli, 1884. 
Jahrb. f. Nat. Oek., 12, Heft 6. 

DiCHN (P.). Die Oesterreichische 
Fabrikgesetzgebung. Jahrb. f. 
Gesetz., 10, Heft 2. 

MiASKOWBKi (A.). Das Anerben- 
recht nnd das Reichszivilgesetz- 
buch. Jahrb. f. Nat Oek., 12, 
Heft 5. 



xil statistics. 



Annuaibe db l'£conomie Poli- 
tique ET DE LA StATISTIQUE. By 

M. Block. (With several eoUabora- 
teurs.| 43* ann^e [1886]. Paris: 
GuiUaumin. 18mo. 
Census of the United States 
(Tenth). Vol. XX Report on the 
Statistics of Wages in Manufact- 
uring Industries, Average Retail 
Prices of Necessaries of Life, 



Trades Societies and Strikes and 
Lock-outs. Joseph D. Weeks, 
Special Agent Washington: 
Gk)vemment Printing Office, pp. 
736. 
Danger und Mainz. Der Gnmd- 
besitz in der Provinz Hannover. 
Beitriige zur Kenntniss Land und 
Forstwirtschaftlicher Yerh&lt- 
nisse. Agrar-statisUsche Gesamt- 



112 



QUARTERLY JOURNAL OF ECONOMICS 



und Specialbeschreibmigen, sowie 
Yendchniss Simtlicher Ofiter. 
Hanover : G. Prior. 8vo. pp. 
Till, 520. Oin. 

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Ami] Jabrg. 1886. Berlin: Putt- 
kammer & Muhlbrecht 8to. 
2.40 m. 

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matical Method of Statistics. 
Joum. of Stat. Soc, Sept. 

Oesterbeich Statistisches 

Haivdbuch. (With Appendix on 
the Affairs common to Austria 
and Hungary.) Von der K. K. 
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1886. Vienna : Holder. 8vo. pp. 
iii, 268. 6 m. 

In Periodicals, 

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der Lebensstatistik. 

1. Der Gegenw&rtige Stand der 

Lohnstatistlk. 

2. Plan zur Exakten Ermittelung 

der Arbeitslohne. 

3. Plan zur Ermittelung der 

Weiblichen Arbeitslohne. 

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beitsverhaltnisse iiberhaupt. 

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sungen im Konigreiche Sachsen, 

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Sichs. sut. Bur., 31, Heft 3, 4, 

Beilage. 
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ions sur la Statistique Graphique. 

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July. 
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Present Position of Italy. (Trans- 
lated.! Joum of sut. Soc., Sept. 
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Jahres 1885 hi Bayem. Zeitsch. 

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tik. Jahrb. f. Nat. Oek., 12, 

Heft 5. 
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kassen im Konigreiche Bayem in 

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18, No. 1. 
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Sutistics. PoL Sci Quarterly, 

March. 
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kassen in 1884. 

Die Ersten Ergebnisse der Armen- 
sUtistik in Preussen. 

Die Vorlaiifigen Ergebnisse der 
Volkszahlung im Preussischen 
Staate vom 1 Dec., 1885. 

Zeitsch. Preuss. SUt. Bur., 26, 

Heft 1, 2. 
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der Wichtigsten Lebensmittel [in 

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Sutistik. [On the Application of 

Mathematics in Political Economy 

and sutistics.] Zeitsch. Sachs. 

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Xm. NOT CLASSIFIED. 



American Social Science Association, 
Journal of. No. 21, conUinlng 
the transactions and papers of 
1885. Boston: Cupples, Upham 
«ft Co. pp. 276. $1. 

Forest Commission of New York: 
First Annual Report for 1885, by 
Townsend Cox, Sherman W. Kne- 
Tals, and Theodore B. Basselin, 
Commissioners. Albany: The 
Argus Company. 

James (E. J.). The Relation of the 
Modem Mimicipality to the Gas 



Supply. Baltimore : American 
Economic Association. [Publica- 
tions of the Assoc., Vol. I., Nos. 
2, 3.] pp. 76. 8vo. 75 cts. 
Produce Exchange of New York: 
Report from July 1, 1885, to July 
1, 1886. New York: De Leeuw, 
Oppenheimer & Meyer. 

Periodicals. 

Unsigned. Arbitrage Speculation. 
SUtist, Aug. 14. 



APPENDIX. 



WAGNER ON THE PRESENT STATE OF POLITICAL 
ECONOMY. 

[In a reoenfc number of the JahrbOcher fUr Natianal-Oekonomie 
und Statistik,* Professor Adolph Wagner reviews Cohn's Syttem der 
National'Oekommie^ of which the first yolume appeared in 1885, and 
takes occasion to discuss at length the present state of political econ- 
omy in Grermany. This discussion, coming from one of the most 
eminent of living economists, is worthy of wide attention. For the 
benefit of those to whom the original article is not accessible, we 
reproduce such parts of it as treat of the general problems of political 
economy. Of some parts we give an abstract, others are translated 
in full. 

Wagner begins with a brief reference to the controversy which 
arose among Grerman economists in 1882 on the appearance of 
Schdnberg's Handhueh der Politisehen Oekonamie. At that time, 
SchmoUer, the leader of the more extreme historical school, had 
expressed his doubt whether the time had come for a new systematic 
work on political economy. He believed that the researches of Grer- 
man economists were bringing about a complete revolution in the 
subject, and that, until this revolution had run its course, no treatise 
of permanent value could be produced. Economic science would 
eventually resolve itself into the history of economic events, — indeed, 
into the history of human society in all its aspects ; and the prin- 
ciples of political economy would be no more than an account of 
the general lines of progress which we observe in economic and social 
history. In opposition to these views, Wagner had maintained that 
economic history and economic theory were not to be identified. 
Side by side with historical investigation, and not to be dispensed 
with by such investigation, must come speculative deduction, — the 
analysis of the desires and motives that underlie industrial activity. 
And, as to a systematic exposition of economic science, such as was 
given in Schonberg's collection of treatises, something of the kind 
was essential. A general view of the subject was the more indis- 
pensable as the field of economic science became larger, and special 
works and monographs became more numerous and more detailed. 

*He{t 3 of vol. zlvi. (vol. zii. of None Folge), iasaed March, 1886. 



114 QUABTERLY JOURNAL OF ECONOMICS 

The controTersy on these fundamental questions, begun by Wagner 
and Schmoller, has not ceased. Some of the historical economists, 
in their reaction against the attitude of certain English writers, 
especially those of the so-called Manchester School, have gone so far 
as to consider historical inTCstigation the only *< scientific " method 
in political economy, and to look with a certain contempt on those 
whom they call dogmatists and theorizers. Boscher and Knies, the 
leaders of the original historical school, never went so far; but 
Schmoller and the younger historical economists have adopted this 
tone. Against them, in the last two or three years, a second reaction 
has set in, — a reaction against the exaggerations of the historians 
and in favor, once more, of a theoretic and deductive treatment 
This second movement has its chief strength in Austria. Among 
others, Menger of Vienna (Untenuehungen 1ti>er die Mdhode der 
Sanalwisienschaften und der Natianal-Oekanomie ind>e$anderef Leipsic, 
1883), Sax of Prague (Wesen und Aufgabe der NaHonal-Oekonomie, 
Vienna, 1884), Boebm-Bawerk of Innspruck (Kapital und Kapitalzins, 
Innspruck, 1884), have protested against the narrowness of the his- 
tori<^ method. Tbey have insisted on the need of abstract and 
deductive reasoning for the solution of economic questions. Menger 
is the most active and prominent of the Austrian writers, and has 
entered into a somewhat heated controversy with Schmoller. Indeed, 
Menger seems to go as far in his protest against the exclusive use of 
historical investigation as Schmoller does in his contempt of theory 
and deduction. Each writer considers his own method of investiga- 
tion to be the only ** exact " and ** scientific " one, and looks down on 
the other's work as unproductive of valuable results. 

It may be noted that, since Wagner's article was written, another 
sign of the reaction against the historical school has appeared, in the 
inaugural dissertation of the newly appointed professor of political 
economy at the University of Freiburg, E. v. Phillipovich (Ueber 
Aufgabe und Methode der Polittgchen Oekonomie^ Freiburg, 1886). 
This scholar declares himself in favor of the strict deductive method. 
His address is reviewed by one of the historical economists in the 
JahrbuchfUr Oesetzgebung^ Jahrgang 10, Heft 3, p. 846. 

As between the two schools, Wagner takes a middle position, 
though he confesses that he leans more to Menger's views than to 
Schmoller*s. But, first of aU, he utters a word of warning against the 
division of economists into opposing schools. He says : — ] 

Nothing is, in my opinion, more harmful for the true ad- 
vance of a branch of knowledge than that a given tendency 
in it, which happens to fit the abilities, the turn of mind, the 
training of individual scholars, which may indeed be fruitful 



APPENDIX 115 

and necessary, is carried so far as to demand for itself an ex- 
clnsive control, and to pretend that in it is the only true sci- 
ence. Then comes the development of divided " schools," and 
the pursuit of the subject solely on the plan of one or the 
other "school" (die VerschiUung des Faches), The result is 
that a valuable line of thought, first entered on by great 
leaders, continues to be followed mechanically by a set of 
commonplace imitators, — men, it may be, of high technical 
training, and the more arrogant for that. The history of the 
fine arts has often shown a similar development. Cliquish con- 
ceit and exclusiveness, contempt of the work of men of other 
views, are, unfortunately, a part of this state of things. . . . 
Ought it to be so hard, and, above all, for men of science, to 
admit that there may be not only different degrees of ability, 
but different kinds of ability, and, therefore, differences of 
inclination, of tendency, of use of method? And, moreover, 
to grasp the inmiense advantage of such differences in a 
many-sided cultivation of the field of knowledge ? The truth 
is that there are minds that tend to deductive reasoning, to sys- 
tematic exposition, to generalizing and dogmatizing ; there are 
other minds of a more " hbtorical " bent, that turn to induc- 
tion, to historical and statistical investigation. The latter lean 
to special study, even to microscopic study : the former lean 
to systematic arrangement. Each tendency has its strength 
and weakness, its merits and defects. 

[Wagner's own views as to the method of political eoonomy are de- 
veloped in another part of the article, which will presently be given in 
f olL But he indicates them with sufficient clearness, when he quotes 
with approval a passage from Cohn*8 book, in which that writer de- 
clares it to be illusory to expect an explanation of economic phenom- 
ena either from the mere collection of historical and statistical data 
or from deductive reasoning alone. Wagner is inclined to lay more 
stress on the value of deduction than Cobn does, yet admits that 
his own bent of mind may give him some bias on this subject. 
The great limitation in the use of deductive reasoning is, he be- 
lieves, that the conclusions reached by it are only true hypothetically. 
They are no more than approximate truths, or tendencies. How far 
the tendencies are carried out in actual fact must be ascertained 
through history, statistics, and induction in all its forms. 

Of Ck>hn's book, Wagner speaks in terms of high praise. He wel- 



110 QUARTERLY JOURNAL OF ECONOMICS 

csotiitis it more especially because of its oomparatiTB breritj and its 
gni<»rrul style, which will serre to spread its views more widely than 
would be tiie case with a book written chiefly for scholars. It will 
aid in disseminating among newspaper writers, among men in public 
lifAp and in the upper ranks of the educated, the principles of politi- 
cly economy in the distinctive form in which they have been cast by 
(:^r[nan thinkers. Wagner reckons it of high importance that the 
chunges which the Germans have made should in this manner be fil- 
UriKl to the public at large. Of those changes, the most notable is 
in tbe general conception of the subject The doctrine of UasMez/mref 
which pervaded the older political economy, has been flung aside. 
More attention has been given to the organization of industry and to 
the social and legal institutions which underlie it The subject has 
been handled in its wider relations. Not that Wagner would make 
the ecope of political economy coincide with the broad field of soci- 
ology or social science. He believes that economic phenomena, 
though they are among the social phenomena, are yet not identical 
with them. But economic phenomena are to be considered in their 
relations to society in all its aspects. Closely connected with this 
view ia the insistence on the ethical side of political economy. Politi- 
cal economy is not only to analyze aod describe what is : it is also 
to point out what should be. 

Scbmoller has also published a review of Cohn's treatise, in the 
last issue of the Jahrhuch JUr Gesetzgebung. flis review is brief, but, 
like that of Wagner, is in terms of high praise. He finds in Cohn 
the distinctly ethical point of view, and finds, moreover, that Cohn's 
attitude is essentiaUy historicaL To his mind, it is in the greatest 
conceivable contrast with the attitude of Menger*s schooL In regard 
to the exposition of specific economic doctrines, Scbmoller contents 
himself with these scant remarks : ** Cohn carries out no part of that 
further development and transformation which, in our own opinion, 
still await political economy. Such corrections as he suggests to the 
older doctrines are, for the most part, common property of many of 
hm fellow-workers.** 

To the consideration of the present state of economic science, of its 
fundamental propositions, of the problems which it has to solve, and 
of the extent to which it is an ethical science, Wagner devotes a sep- 
arate division of his article. This may be taken as a manifesto of 
hiH views ; and we reproduce it in full, as follows : — ] 

In my own conception of the subject, I have arrived at the 
following results ; and I venture to state certain problems for 
political economy. In discussing these, I shall also touch on 
the a])plication of the various methods. 



APPENDIX 117 

Our industrial action — that is, our action in so far as it 
is directed to the acquisition and use of wealth, or of means 
for satisfying desires — is determined by a variety of motives. 
These motives appear in different combinations. Sometimes, 
they operate together in the same direction : sometimes, one 
works against the other. The character and aim of our indus- 
trial action are formed in accordance with them. They are 
different in individual cases. The universal element, common 
to all humanity, is merely the fact that these motives are 
able to determine our action, and do determine it ; and, again, 
that different combinations of motives and different degrees 
of strength in them can and do occur. The element that 
varies in the history of a given population, varies with differ- 
ent individuals, and varies in the same individual under differ- 
ent circumstances, is that the combinations of motives change, 
that the individual motives change in relative strength ; and, 
therefore, our industrial action varies. It follows that there 
is a possibility, and there may be a desirability or necessity, 
of bringing some influence to bear on these combinations of 
motives and on their relative strength. Such an influence 
may come from within or from without, it may be exerted 
on individuals or on an entire population. Hence, we may 
speak of the education of an individual or of a people toward 
a given aim which we think right. 

The aim which lies before an individual or a people is deter- 
mined by the moral law, which finds its support in positive 
law, and also by the interest of the species, which is expressed 
in the precepts of morality and of law. We find certain legal 
and moral rules as to what should be the relative strength of 
various motives, as to the strengthening of one, the weaken- 
ing of another, as to their combination in different ways. 
The progress of society depends on whether those motives 
which accord with the law of morality (itself subject to his- 
torical development) and with the interest of the species 
are made to appear in the proper combinations and with the 
proper degrees of strength. The great point is that the mo- 
tives of individual advantage should be combined with altru- 
istic motives, or replaced by them. The last and highest ideal 
for an individual and for a people — an ideal not to be reached 



118 QUABTERLT JOURNAL OF ECONOMICS 

by man, yet to be striven for — is first to develop the finer 
egoistic motives in place of the coarser, and in the end to 
substitute entirely the non-egoistic motives for the egoistic. 
What an individual or a people has achieved in this respect 
is the measure of its moral worth and of its true advance in 
civilization. 

The different motives can be reduced, I believe, to five, — 
four egoistic and one not egoistic. Each presents itself in two 
aspects. The four egoistic motives are : (1) one's own indus- 
trial advantage and the fear of want for one's self; (2) the 
fear of punishment and the hope of approval, perhaps of 
reward ; (8) the sense of honor and the fear of disgrace ; (4) 
the impulse to activity and to the exercise of power, and the 
fear of the results of inactivity. The non-egoistic motive is 
the sense of duty and the fear of conscience. 

The first motive, the wish for gain and the fear of want, 
lies at the foundation of the theory of self-interest, of selfish- 
ness. It is the basis of the deductive reasoning of the abstract 
theory, especially of the more extreme tendency of economic 
individualism. Hypothetically, its use is always proper; and, 
for the isolation of causes, it has proved the best of methodo- 
logical tools. In tracing the causes of the actual phenomena 
of industry, its use, at least to a certain point, is always 
proper. For we have here an element common to all men. 
We have an element founded on a law which is in truth a 
" natural " and ultimate law. It is based on the physical nat- 
ure of man, on his mental nature (which depends primarily 
on his physical nature), and on his relations to the external 
world. As it affects the individual, so, also, it represents the 
interest of the species, since the species exists and is con- 
tinued only through the individual. The objections of his- 
torical economists are obscure, and are carried too far, when, 
instead of admitting the hypothetic value of deduction from 
selfishness, they deny that it has any value whatever. They 
make a mistake which is the reverse of the mistake of the 
advocates of pure deduction ; and their mistake is the greater. 
In considering the modifications of industrial self-interest in 
different individuals, different peoples, at different times, its 
various combinations with other motives, they forget that 



APPENDIX 119 

there is, after all, a universal element of humanity in this 
selfishness. The purely deductive economists commit the less 
mistake of neglecting the modifications of self-interest, and its 
varying combinations with other motives, — the less mistake, 
yet still a great and calamitous mistake. 

I do not reckon it a part of the mistake of the deductive 
reasoners that they overlook the fact that self-interest, when 
spoken of as the motive of industrial action, often does not 
mean one's individual interest alone, but. includes the interest 
of others; to be sure, of others in whose welfare the person 
who acts takes an interest. Consider the family, the acquisi- 
tion of property for transmission to descendants. Here the 
egoistic action becomes altruistic. Yet, while there is a wid- 
ening of the selfish motive, it remains egoistic. Of greater 
importance is the modification, the differentiation, the combi- 
nation of this motive with other motives, in individuals and 
in the history of society. When we consider the character of 
man's desires and of their satisfaction, his industrial activity, 
the weight of these influences in human nature, we may be 
tempted to speak once for all of the " economic nature " of 
man, and to draw conclusions from it. Tet it is a mistake to 
think that this economic nature remains always the same in 
individuals or in a people. It is a mistake to think it is the 
whole of man's nature. And, lastly, it is a mistake not to see 
that, even in his economic life, man may at all times be influ- 
enced by various motives, in different combinations, and in 
varying degrees of strength ; that even his industrial action 
can be influenced, often is influenced, and certainly often 
should be influenced, by other motives than that of mere per- 
sonal advantage. 

My second class of egoistic motives included the fear of 
punishment (more generally, fear of disadvantages of a non- 
economic kind) and hope of a reward of a non-economic kind. 
These motives are to be counted among the psychologic ele- 
ments, when personal freedom does not exist, and labor is 
done under compulsion. They help to explain economic phe- 
nomena under such conditions. They are notably to be con- 
sidered in the explanation of some important events in 
economic history, such as the process by which slave labor 



120 QUARTERLY JOURNAL OF ECONOMICS 

oeases to be profitable. They lead us to modify many conclu- 
Bions which have been deduced without sufficient qualifica- 
tion from the motive of individual industrial advantage. For 
practical questions, their considerations may be important as 
a corrective to the exaggerated stress often laid on the benefi- 
cent working of the principle of self-interest. It is true 
that the principle of self-interest is generally beneficent ; but 
the truth has often been imduly emphasized. Instances may 
be found in the discussions on abolishing slavery and serf- 
dom, on compelling men to work or to make savings from 
their incomes. When the negro was treated as if he were 
influenced by the same economic motives as the European, his 
emancipation could not but lead to many disappointments. 

In the third class of egoistic motives, the sense of honor 
and the fear of disgrace, we have to consider higher and 
nobler elements, but still selfish elements. Yet there is a 
pleasure in seeing them at work in place of the coarser motive 
of individual gain, or at least side by side with it. The guild 
system at its prime gives an example. Such motives must be 
taken into account in economic legislation. That they can 
and do have an effect is not to be denied. One of the mis- 
takes of the older theory of selfishness was to disregard them, 
— a mistake of much practical importance, since it led to the 
notion that in analyzing ^' purely economic " phenomena it was 
absurd to pay attention to actions based on other motives 
than that of individual advantage. An economist has said 
that " over-conscientiousness is a disadvantage in business, — 
and deservedly so ! " That comes very near the remark (thank 
Heaven, much exaggerated) of the stock jobber, " One can't 
make a fortune nowadays without brushing close to the pen- 
itentiary I " — When we consider how easily a sense of honor 
degenerates into mere ambition, it becomes obvious that these 
motives after all are at bottom egoistic; whence again we 
conclude that they, like the motive of individual advantage, 
may lead to actions opposed to the general interest of society. 

There is still a fourth class of motives, distinct from the 
preceding, — motives which, as we all know, often play their 
part, and which belong to the egoistic group, since they are 
based on the interests and wishes of the individual who acts. 



APPENDIX 121 

Typical among them is the impulse to activity, to which 
SchmoUer has called attention ; often, though not invariably, 
combined with the wish to exercise power. In their other 
aspect, we see them as the fear of losing power, perhaps the 
fear of physical ills, such as loss of health, perhaps the mere 
dread of ennui. No economic interest is necessarily involved. 
Ambition need not enter, although ambition is very likely to 
play its part in connection with these motives. On the con- 
trary, motives of public spirit are often combined with them. 
But, at bottom, as a psychological phenomenon, they are based 
on nothing more than the mere impulse and desire to ^^do 
something.'' Sometimes, in the restless activity of men who 
carry on industry on a great scale, the wish to accumulate 
property is the immediate aim, — but not for the sake of mate- 
rial advantage, but for the sake of the power which a fortune 
gives. There is something more than a merely industrial 
motive. Many events of recent years, great financial opera- 
tions, such as the P6reire Cr6dit Mobilier, which was a struggle 
of the Portuguese Jews, represented by P6reire, against the 
German Jews, led by Rothschild ; or, again, the struggles of 
American financiers, — these are based, psychologically, not on 
the mere desire to acquire wealth, but on the wish to exercise 
power. 

Lastly, in this complex of motives, and in the struggle for 
self and for those whom we make part of ourselves, we 
find the non-egoistic motive, the sense of duty, and, when 
we fail to do our duty, the reproach of conscience. We may 
be thankful that it can appear, and does appear, in industrial 
actions, repressing and modifying other motives. Because of 
it, competition is not pressed to the utmost, prices do not 
reach the highest or lowest limits which the pursuit of individ- 
ual advantage would fix, and would fix without encountering 
an eflfective check in the mere sense of honor and propriety. 
Under this head, we are to class not only all charitable action, 
but the cases where an industrial or social superior purposely 
refrains from making his own interest the exclusive ground of 
his economic conduct. 

Action in obedience to altruistic motives, such as individ- 
uals occasionally undertake of their own free will, should 



122 QUARTERLY JOURNAL OF ECONOMICS 

often be oommanded by the general precepts of the moral 
law. All experience teaches that action of this kind is most 
effectively secured if it be also enjoined by religion. It is 
further promoted if it be embodied in the code of custom. 
As the duty of such action becomes generally recognized, the 
way is paved to its gradual incorporation into the legal system 
and its more or less thorough enforcement by law. The great 
historical example is to be found in the usury laws. But 
all laws that limit freedom of contract, in order to protect 
the industrially weak against the industrially strong, which 
try to increase the gains of the poor in the struggle of 
competition, fall under this head, and so legislation for pro- 
tecting workmen, for workmen's insurance. Here the task of 
the individual is a voluntary moral one ; the task of society 
is to secure obedience to the moral law in industrial life. The 
means of others than those directly interested — the public 
means in the shape of taxes — are used for the benefit of par- 
ticular classes; the public treasury gives contributions for 
schools, for workmen's insurance; thereby the conscience of 
society is shown to have been moved to active exertion. 
Here we must set up an ideal of a just distribution of incomes, 
an ideal doubtless unattainable, yet always to be striven for, 
by which distribution on the lines of the egoistic motives is 
to be changed and amended. That is a demand opposed to 
the doctrine of free competition. But, on the other hand, 
we must also set up, in accordance with the sense of duty, 
the ideal that each individual should do his best to increase, 
to improve, and to cheapen production. To secure such 
conduct by individuals, we must have the co-operation of 
egoistic motives, which are to be modified and restrained by 
the motives of conscience, but not to be wiped out. Their 
stimulus is needed not only with men as we know them in 
history: it is necessary under every possible conception we 
can form of the physical man, in any organization of society. 
The latter demand is opposed to the doctrines of the extreme 
socialists, the former to the extreme individualism of free 
competition. 

Now theory, in so far as it operates with psychological 
motives, makes deductions from them, and tries to explain phe- 



APPENDIX 123 

nomena that are based on man's economic activity, must begin 
by considering the possible influence of all these motives. 
Hypothetically, we may disregard the operation of some of 
them. We may assume, for instance, that the first motive, 
that of securing individual advantage, is alone at work. But 
theory can never begin by assuming as certain that this is fact, 
and that the one motive suffices to explain the phenomena. That 
must be tested by observation and experience. And, when 
the theoretical question is. What should be? we must always 
investigate, and must never assume, that the state of things 
at which we aim will take place through the mere operation of 
self-interest. If it does not so take place, we must search 
whether the other egoistic motives can serve or ought to 
serve to bring about the desired result ; and, finally, in case of 
need, we must appeal to the motives that spring from the 
sense of duty. 

To bring these various motives into operation, to pave the 
way for right customs in industry, and for sound economic 
legislation, — for this, the proper practical measures must be 
sought. In preparing them, recourse must be had to experi- 
ence. The first preparation of all will be to enlighten and 
educate public opinion in such manner that the conscience of 
each individual is aroused, and thereby the public conscience. 
The necessary laws and compulsory measures, such as factory 
legislation, workmen's insurance, reforms in taxation, will then 
be understood, supported, demanded. Industrial reform must 
not of necessity wait until public opinion has advanced to 
this point: the delay would often be too great. But the 
ease and the more certain success of reforms depend on the 
advance of public opinion. Industrial organization (toirth- 
schafUiche Organizationen) will stimulate or compel the indi- 
vidual to repress the motives of self-interest, and to let the 
motives of honor and duty prevail. Thus the recasting of the 
branches of production into some form of joint corporate 
action is commendable, as a substitute for the atomistic ten- 
dencies of our time; for, in such a form, the selfish motives 
are not so likely to overpower other motives. Excessive free- 
dom of competition leads almost of necessity to the exclusive 
control of the motives of individual advantage. We must, of 



124 QUARTEBLT JOURNAL OF ECONOMICS 

coarse, alwa3rs inquire whether in fact the advantages of cor- 
porate organization are secured, and whether its disadvan- 
tages, such as the check of productive powers and of advance 
in the arts, and that cliquishness which is inherent in the 
corporate system, do not outweigh the advantages. 

The deductive method can he safely used in political econ- 
omy only on the hasis of such a comprehensive analysis of the 
psychologic motives of industrial action. And induction must 
always be brought to aid in making more accurate the approx- 
imate conclusions which have been reached by deduction, and 
which, as a rule, can be reached by deduction alone. Deduc- 
tion serves to verify, to confirm, to test. I should be inclined 
to say that the inductive process serves as a corrective and 
supplement for the deductive. 

These, then, are the two methods : on the one hand, deduc- 
tion from psychological motives, — first and foremost, deduc- 
tion from the motive of individual advantage, then from the 
other motives; on the other hand, induction from history, 
from statistics, and from the less exact and less certain, yet 
indispensable, process of common observation and experience. 
With both methods we are to approach the various prob- 
lems of political economy, and to solve them so far as we 
can. Which method is most to be used depends on the 
nature of the particular problems ; but it depends also on the 
turn of mind, very likely on the accident of training and 
education, in the individual investigator. 

The five following problems for political economy may be 
distinguished. I can indicate them but briefly; and, for 
greater brevity and clearness, I put them in the form of 
questions : — 

I. Which are the economic phenomenaf In what way do 
they arieCy develop^ change? What is the typical element in 
them^ the general phenomenon as distinct f^om the indimdaalt 

IL How are these phenomjena and the general element in 
them^ both in their development and in their present statCy to be 
esq^lained as resting on catcses and conditions f 

We are to set forth and to explain the phenomena : first, 
to enumerate and describe them ; then to discover the causes 
that determine them and the conditions on which they rest. 



APPENDIX 126 

The description and enumeration take place with the aid 
of history, of statistics, perhaps of common observation. Yet, 
even here, recourse must be had to deduction from the psy- 
chologic motives, deduction giving hypotheses to supply the 
many links that are missing in the inductive chain. 

At this point, however, I must insist, with Menger, that the 
true duty of our science is to discover, through history and 
statistics combined with deduction, not the mere concrete 
individual facts, but the typical and general facts. Herein 
lies, for example, the distinction between economic history 
and economic theory. In the latter, we have to do, above 
all, with comparative history and comparative statistics. The 
distinction justifies and perhaps necessitates in practice the 
division of labor between the historian, who searches for 
the actual facts, and the theorist, who strives to ascertain 
the general element in the phenomena. 

The explanation of causes takes place primarily by deduc- 
tion. Then we compare the phenomena which we deduce 
as likely with those which in fact appear. Deduction is 
again combined with induction. Comparative statistics are 
of special importance in checking our deduced results, their 
value of course depending on the degree of perfection which 
has been reached by the statistical method. 

III. How are we to meastire the social merit of the economic 
phenomena f In order to measure it, we must have a standard 
of the right production and distribution of wealth. Wliat ie 
the standard f 

IV. What aim should we set for the development of pro- 
duction and distribution f Here the question is, What ought 
tohef 

A standard is necessary, and is attainable. We can learn 
from observation what is the actual production, and may 
compare it with the possible production in the existing state 
of the arts. We may compare the actual distribution of prod- 
ucts with that distribution which, given the existing popula- 
tion and the existing state of the arts, is the ideal to be at- 
tained. The standard necessarily differs in different places 
and at different times. It changes as economic conditions 
change, varying especially with the changes in density of pop- 
ulation and in the state of the arts. 



126 QUARTERLY JOURNAL OF ECONOMICS 

The aim in regard to production is such quantity and 
quality of products as will suffice to satisfy the proper mate- 
rial, intellectual, and moral needs of the people. Those needs 
are no more to be exceeded than to be fallen short of. Ex- 
cess in either direction is against the advance of civilization, 
although we are generally inclined to think that only an insuf- 
ficient production is harmful. At the same time, production 
should take place with the minimum cost and sacrbSce, which 
depends on the state of the arts, and mainly on our com- 
mand of the forces of nature. Comparing such an ideal pro- 
duction with the actual production, we are able to pronounce 
judgment on the latter. 

The aim in regard to distribution can only be stated for 
a given state of the arts and a given density of population. 
The true and permanent interest of the species, of the people 
as a whole, must always be the test for deciding the man- 
ner and extent to which the desires of classes and individuals 
are to be satisfied. The ideal to be aimed at is such a distri- 
bution as enables the mass of the people to satisfy their mate- 
rial desires in a way to insure their physical and mental devel- 
opment and their participation in the fruits of civilization. 
How far this ideal can, in fact, be attained depends partly 
on the total of the people's income, not only on the share 
which goes to the higher classes in the shape of return on 
investments, of entrepreneur's profits, of high salaries, — a share 
which must necessarily go to them for the maintenance of 
production as well as for the advance of civilization. But it 
depends also on an element which socialism has not duly con- 
sidered; namely, the ratio of the increase of population to 
the increase of production. Comparing this ideal distribu- 
tion with that which exists, we may in turn pronounce judg- 
ment on the question of distribution. 

As to method, we have again to combine deductive reason- 
ing with induction from history, statistics, and conmion ex- 
perience. 

V. What are the ways and means of attaining (perhaps 
only of approaching) the ideal aim in production and dis- 
tribution f What should be done in/oUotoing out our aim f 

First come those means which look to psychological influ- 



APPENDIX 127 

ence on the will of the individaal, in order that it may deter- 
mine economic action in the manner best for the common 
interest in production and distribution. Here above all the 
deductive method is to be widely used, in establishing our 
conclusions and in testing them by the experience of daily life. 
Next, the spread of sound moral ideas, of right customs and 
habits in industrial life, is an efficient means. Thereby the 
motives of honor, of duty, of impulse to activity, are aided 
in getting the better of the motive of individual advantage. 
Here we have again a wide field for psychologic analysis, 
for deduction, for testing conclusions by the experience of 
life. Last among the proper means comes economic organi- 
zation, supported by conmiands and prohibitions of law. 
Such means are often indispensable. Sometimes they alone 
are available, where the desired results are resisted by the 
absence of proper motives in the individuals, by the moral 
defects of a people, by vicious industrial customs. ^' Organi- 
zation'' must consist chiefly in the combination of public 
industry, of State or municipal industry \_gem€imo%rthschafU 
Itches System]^ with private industry. It may consist in the 
complete substitution of the former for the latter. It may 
also consist in the recasting of the different branches of pri- 
vate production. In the matter of legislation, freedom of 
competition may be restricted or regulated both by civil and 
administrative law. The law of property, of contracts, of 
inheritance, of eminent domain, may be modified. 

The proper course of action in any specific case can only be 
determined on the basis of a careful analysis of facts as they 
are, and, so far as possible, in the light of comparison with the 
industrial laws and habits of other peoples and other times. 
In ascertaining the facts as they are, historical and statistical 
methods have a field of wide application. Official collection 
of statistics and official investigation are often most efficient 
methods. They aid, in turn, in the choice of new forms of 
organization and legislation. But the deductive method, with 
its hypothetical assumptions and conclusions, is also indispen- 
sable. So, for example, in order to judge whether, given 
certain customs and moral rules, and given a certain strength 
and combination of economic motives, we can expect to reach 



128 QUARTERLY JOURNAL OF ECONOMICS 

the intended result. Since the chief means of reaching a 
given end must always be to cause the will of individual men 
to be influenced by the proper motives, we must often con^ 
tent ourselves with the slow but in the long run more effeo- 
tive process of educating society and its individual members. 
Above all, we are to encourage the education and training of 
self, the substitution of new motives for the old, and thereby 
are to strive for and expect other customs and moral rules in 
industry. 

These five problems, — to ascertain and describe economic 
phenomena ; to explain their causes ; to judge of their social 
merit ; to set up an aim for economic progress ; to point out 
the way for reaching this aim, — these, then, are the single 
parts of the great general problem of political economy. In 
a systematic exposition of the subject, a solution of all of 
them must be attempted. The form of the exposition is 
necessarily affected by this classification, yet not in such 
way that each of the five parts must have separate treatment. 
The first four are too closely connected to permit a separation. 
The second, again, is too directly involved in the first, and 
the fourth in the third. Only the fifth, where we have to 
deal with the practical questions of an art, can be clearly dis- 
tinguished from the rest. I should be in favor of retaining 
the first four for the general or theoretic part of a system of 
** social economy." The fifth would belong to the special or 
practical part, which, again, might have two divisions, — one 
on economic administration, describing existing laws and meth- 
ods, and a second on economic policy, discussing the proper 
measures for the future. In the theoretic part, the first and 
second problems would be handled rather descriptively ; while 
the third and fourth would give occasion for considering ques- 
tions of principle. To this latter, I would give the rank of 
a discussion of fundamental principles (Orundlegung), and 
would place it at the beginning of the treatise, combining 
with it the psychologic analysis of instincts and motives, some 
consideration of fundamental concepts, the question of method, 
and a history of the literature of the subject. 

Everywhere, we must combine deduction from psychologic 
motives and from the given industrial conditions with indue- 



APPENDIX 129 

tion and description from history and statistics. As has been 
indicated, different methods will be used more or less in 
handling the different problems. Something most depend 
on the individuality of the writer^ one or the other method 
will be Qsed in greater degree by different men. That in 
itself gives no occasion for praise or blame. The essential 
questions are whether the proper method has been used for 
the specific problem, and whether the results attained are of 
value. The results of course vary in the different parts. 
They may be facts, explanations of causes, praise or con- 
demnation, the ascertainment of economic aims or the point- 
ing out of practical measures. 

[[n oouolusion, Wagner ezprasses himself more speoifioally ou eer- 
iain importaat eooaooiic dootiiaes. He says:—] 

When Schmoller, in his review of Schdnberg's JGimUooA, 
to which allusion has already been made, expressed his 
scepticism in the matter of general treatises, he prophesied 
that before long we should have quite outlived the old system 
of dogmas. I ventured then to express the belief that this 
complete rejection went too far. I pointed out that the first 
and great leader of the historical school, W. Roscher, had 
refrained — and no doubt for good reasons— from throwing 
overboard the old doctrines, and that aity other course was 
the more questionable from the absence of substitutes. For, 
barring a few scant criticisms, there is nothing that can take 
their place. Nay, the historical economists themselves, time 
and again, make use of the old principles, as in the theories 
of value and of cost of production, which are nothing more 
than parts of what is called the *'old dogmatism.'' I am 
glad to find that, in this conception of the] subject, Cohn's 
book supports me. 

Among the more important— indeed, the most important— 
points in the *' old dogmatism," we may reckon the following : 
First, the law of diminishing returns, what English economists 
call the law of production on land. Based on this, and also 
on the increase of population and of demand for products, we 
have next the law of rent, to which the classic names of 
Ricardo and Von Thdnen are attached. Then Malthus's 
principle of population; then the doctrine that production 



130 QUABTEBLY JOUBNAL OF ECONOMICS 

is limited by capital; and, lastly, the so-called wages-fand 
theory, — in part a deduction from the doctrine that pro- 
duction is limited by capital. The older statements of the 
wages-fund theory are no doubt to be modified and more care- 
fully worked out ; but it cannot be declared entirely wrong. 
The sweeping attacks which have been made on it by Eng- 
lishmen like Thornton, even by Mill himself, by Germans like 
Brentano, by Americans like George, fail to go to the root of 
the matter. All these old doctrines are maintained by Cohn, 
as they have been by Roscher, by Sch&ffle, by myself. He 
handles them as generalizations which (and this is the essen- 
tial point) are true in their kernel, — generalizations which 
we arrive at from inductive observation of facts and from 
their deductive explanation. He tries, often with great suc- 
cess, to analyze them more thoroughly, to state them more 
carefully, to point out their limitations in theory and practice, 
to show under what conditions the theory will apply, and 
how other conditions may enter and change the actual result. 
Cohn's exposition sometimes puts things in an unusual way ; 
but, at bottom, he gives the old doctrines. 

The way in which different causes may counteract each 
other has been not infrequently pointed out by economists. 
Cohn himself, in one of his earlier discussions, on the effect of 
American competition on agricultural prices and rents, gave 
an example of such treatment. He showed that this cause, 
which was working against the theoretic rise of prices and 
rents, had already been tkken account of by economic science, 
and had been assigned its place in the theory. Hence it was 
no refutation of the theory, but only a part of it, an admitted 
counteracting force. There is no fact in this branch of the 
subject which does not fit completely into the enumeration 
which Mill gave of the forces that counteract the laws of 
diminishing returns. (Mill, Political Economy^ Book I., chap, 
xii., §8.) 

Cohn does not maintain the wages-fund theory as far as I 
should still be inclined to do. Yet even here, in speaking of 
the dependence of wages on the wages-fund, he admits the 
essential point. He grants that, for any given time, the the- 
ory is relatively sound, and that, for the time being, the wages- 



APPENDIX 181 

fand is of deoisive importanoe in determining wages. The 
kernel of the wages-fund theory seems to me not refuted by 
Hermann's theory that wages are paid from the incomes of 
consumers. Indeed, the two theories are not inconsistent, but 
are to be combined. As production stands nowadays, the 
effective demand for labor, the employment of laborers, and 
the payment of wages to them, ordinarily come from the cap- 
ital of erUr^prtneurB. The demand of consumers for prod- 
ucts determines only the direction in which the labor and 
capital shall be employed. But it is true that capital does no 
more than to advance wages. The advance is recouped by 
the payments of the consumers, by the effective demand from 
them. As a general thing, it must be recouped, in order that 
capital may continue to employ labor and pay wages. In so 
far, the payment by consumers may be said in the end to give 
labor employment and to insure a given rate of wages. Bet- 
ter, it may be said to determine the conditions under which 
alone capital can permanently employ labor and grant it a 
certain rate of wages. But at any given point of time, this 
rate of wages can be secured only if the capital is sufficiently 
large in amount, and if it consists of (or can be readily con- 
yerted into) commodities consumed by laborers. Mill's origi- 
nal doctrine in his great treatise, with a few modifications 
suggested by Hermann and the Germans, remains to this 
day a particularly successful exposition of this subject. 

I consider it an especial merit of Cohn's that he has again 
brought forward the principle of population in that connection 
with the problem of distribution which was given it by the 
older theory. I maintain it in the same way, and have so 
treated it in my lectures for a number of years, departing in 
one respect from the exposition given in my treatise. * Cohn 
lays the greatest stress on the importance of the movement of 
population, and especially of its increase, in distribution, and, 
above all, for the rate of wages. This is perfectly sound. It 
disposes of the three kinds of optimism by which the matter 
has been obscured : that of individualists of the Manchester 

* In my treatise^ the detailed diaoiusion of the law of popnlatioii is laokiiifir* 
Propeily, it belongs in chap. ii. of Diy. I., between §§ 93 and 94. I purpose 
inserting it at that place at some future time. But, at p. 145, 1 have laid down 
the general principle of population in what seems to me the sound form. 



132 QUABTEBLT JOURNAL OF ECONOMICS 

School, like Bastiat; that of Americans, like Carey, who draw 
wide generalizatioDB from the conditions of thinly populated 
countries ; and that of the extreme socialists, like Marx and 
even Rodbertus. Cohn goes his way, undisturbed by the in- 
effective attacks on Malthus's untenable formula. Nor is he 
led astray by the references to the enormous increase, espe- 
cially in this century, of the powers of production, by which 
superficial optimists suppose that they can refute Malthus. 
He shows unanswerably that, notwithstanding the tremen- 
dous growth of productive capacity in the era of steam and 
notwithstanding the actual increase of production, the maxi- 
mum benefit for the laboring population, and especially for its 
lower layers, has not been secured, because of the impulse 
to a mere rapid growth of population. ♦ ♦ ♦ 

The socialists on one side, and Carey on the other, are sim- 
ply blind in this matter. Only in very recent times has one 
of the German socialists, Kautzky, seen that even in a social- 
istic society (it would be more true to say, in such a society 
of all others) the question of population is the most danger- 
ous point, — perhaps the point at which it will get its death- 
blow. We have here to solve no questions of law or of organ- 
ization. There is not even, primarily, a psychologic element 
involved. The problem is simply one of arithmetic. If pop- 
ulation increases faster than product, the quotient for each 
individual must become smaller. If rent, interest, entrq^re- 
neu$^s profit, high salaries, be considered as deductions from 
the total product, and if only the remainder goes as wages 
to the laborers, then the quotient for these latter of course 
becomes still smaller. And even in a socialist organization, 
where no such deductions are to be made, and the whole 
product is to be divided on some scheme or other among the 
total population, the quotient remains still a decreasing one. 
Only if production shows a greater increase in the socialist 
state than in our present bourgeois state, — the ** state of pri- 
vate capital,'' — only if the arts of production advance more 
rapidly, only if population, on the other hand, advances less 
rapidly, only then can the average condition of the indi- 
viduals be improved. But since a more favorable produc- 
tion and a greater advance in the arts are at least doubtful 



APPENDIX 138 

in the socialist state, since, for obyioos psychologic reasons, 
the increase of population is likely to be more rapid, the 
probability is that the condition of the individual could not 
possibly improye. This, of course, on the supposition that 
the excessive growth of rents, of interests, of enPrqprenew^s 
profit, in our present society, can and will be checked. To 
put it in another way, the socialist state, even if it succeed in 
getting a fair start, is likely to be wrecked on the problem of 
population. 

Consider the connection of the question of population with 
the most serious and difficult questions of social policy, and 
the conviction is forced on you that the ^old dogmatism'' 
has stUl some practical as well as scientific value. 



PRICES m IRELAND. 

Ths question as to the present ability of the Irish tenants 
to pay the judicial rents fixed under the act of 1881 has been 
raised, especially by Mr. Pamell in a recent q>eech9 and is 
DOW the subject of discussion in England. Both the Scano- 
mUt and the SUUist haye treated the question recently in 
its relation to the ^crisis,'' from which the agriculture of 
Western Europe generally is suffering, and hare presented 
the figures showing the fall in price of the staple products of 
Ireland. Some tables given by the StoHst^ in its issue of 
September 11, as bearing upon this subject, are here re- 
I^rinted : — 

L Average prices of butchers' meat (i>er stone of 8 lb. sinldng oUmI) at 
the Metropolitan Cattle Market, 1880-85, and comparison of price in 
1886 with average of 1880-84. [Return Na 137, Session, 1880.] : — 



FaU in 1885 c 
pared with ATer- 
age 1880-84. 



Beasta: — 

Inferior 

Second class, . . . 
Third class, . . . 
Poorth class, . . . 

Bbcep ; — 

Inferior, 

Second class, . . . 

Third class 

-. Fourth class, . . . 
^^ambi, 

t^iUves :— 

Coarse 

Small prime, . . . 

^gehogs, . . . 
atntai, neat porkers, 



I lit 



1881. 



s. d. 



x3 



8,0, 



% 



4 4 4 8| 4 

4 Hi 6 l\\ 4 10^1 4 8 



1883. 



s. d. 



6 10 

6 

6 

7 
8 



6 1U 
6 6 



* ?* 



1884. 



s. d. 



r3 



1886. 



Ayerage. 



s. d. 

4 1 

6 2 



4 7 
6 Oi 
6 4 



13 



s. d. 

4 1^ 

6 6 

6 H 



6 4^ 

6 11 

6 ^ 

7 10 



7 



FalL 



6 
6 
10 
10 



16 
16 
19 
19 
14 



16 
15 



18 
IS 



APPENDIX 



135 



XL Average prices of batter and cheese imported in the years 1880-<85, 
deduced from the quantities and values imported, and average price of 
milk at Bethlehem Hospital [Return No. 137, Session, 1886] ; also, 
average prices of wool from same return, and comparison of prices 
in 1886 with average of 1880-84 :— 



FaUinl886 

compared 

with average 



Batter, Imported, 
perewt., . . . 

Cheese, Imported, 
perewt., . . . 

Milk, per gallon, 

Wool:- 
Aostrallan, per 

lb.. . . r. 

South African, 
English fleeces. 



1880. 



6 4 4^ 

2 17 4 
Oil 



1881. 



£.«. d. 
6 6 1} 

2 17 
Oil 



12^ 
13 
11} 



1882. 



6 4 7} 

2 16 0} 
10 



!? 



1883. 



£.«. d, 
6 10^ 

2 14 4^ 
10 



1884. 



£.«. d. 
5 14 

2 11 11 
10 

1 04 
1 ll 
u} 



AVge. 



£.«. d. 
4 16 3| 

2 4 4^ 
Oil 



on 






I 



£.«. d. 
6 8 4 

2 16 4 
1 0| 

1 1ft 
12} 
1 l| 



Fall. 



20 
12 



22 
84 
19 



HL Prices of homed cattle and sheep at Ballinasloe, October Fair, in 
1880-85, and comparison of fall in 1886 with average of 1880-84 [com- 
piled from Thom's Almanac] : — 

























FaUinl886 
























compared with 
























average 1880-64. 




1880. 


188t 


1882. 


1883. 


1884. 


1886. 


Average. 


Fall. 




£. 


9. 


£. 


9. 


£. 


8. 


d. 


£. 


9. 


d. 


£. 


8. 


d. 


£. 


9. 


£. «. d. 


% 


Oxen:— 




































First chtfs, . 


22 


10 


21 





23 





022 








20 


17 





19 


021 17 6 


18 


Second dais. 


19 


10 


18 





20 





0'l9 








17 


16 





16 


10;i8 17 


12^ 


Ttaird class, . 


16 





14 


10 


16 





0,16 


10 





16 


10 





14 


0!l6 14 


iT 


Foorth class, 


14 





12 


10 


13 


10 


018 


16 





12 


10 





11 





18 6 


17 


Heifers:- 


































First class. . 


22 


10 


21 


10 


23 


10 


022 


10 





21 








19 


10 


22 4 


12 


Second class. 


19 


10 


18 


10*20 





019 


16 





18 








16 


io:i9 8 


14 


Third class, . 


16 


10 


16 


10,17 





016 


16 





16 








14 


0116 8 


13 


Fourth class. 


16 





14 





16 








14 


10 





12 


16 





11 


10 


14 6 


10 


-Wedders: — 




































First class, . 


3 


10 


8 


6 


8 


16 





8 


10 





3 


7 


6 


8 





3 9 6 


14 


Second class. 


3 


8 


2 


18 


8 


6 





3 


2 





2 


16 





2 


10 


3 10 


18 


Third class, . 


2 


18 


2 


13 


2 


17 


e 


2 


16 


6 


2 


10 


6 


2 


6 


2 16 


18 


Fourth class. 


2 


10 


2 


6 


2 


8 





2 


6 


6 


2 


6 





2 





2 7 


16 


J:wes: — 




































First class, . 


3 


3 


2 


18 


3 


2 


6 


8 








2 


17 





2 


10 


3 1 


17 


Second class. 


2 


10 


2 


6 


2 


10 





2 


7 


6 


2 


6 





2 





2 7 8 


16 


Third class, . 


1 


18 


1 


16 


2 








1 


17 


6 


1 


16 





1 


16 


1 17 1 


6 


Fourth class, 


1 


14 


1 


9 


1 


16 





1 


12 





1 


13 





1 


10 


1 12 6 


8 



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METHODS OF TEACHING AND STUDYING HISTORY. 8ecomd BiUMmi. Edited bj 
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HOUGHTON, MIFFLIN & COMPANY, Boston. 



THE 



QUARTERLY JOURNAL 



or 



ECONOMICS 



JANUARY 1887 



No, 2 



CONTENTS 

1. AN HISTORICAL SKETCH OF THE KNIGHTS OF 

LABOR ' - * i37 

Cft^roU D, Wright 

a THE DISPOSITION OF OUR PUBLIC LAT^^ i6g 

Albert Bushnell 1 : 

HL THB SOUTH-WESTERN STRIKE OF r986 1^4 

F. W. Taa^lf 

NOTES AND MEMORANDA aa^ 

Mafshairs Theory of Value and Distribution aa? 

Some Objections to ProHNsbarmg 13a 

RECENT PUBLICATIONS UPON ECONOMICS 343 

APPENDIX 

TABLES RELATING TO THE PUBLIC LANDS - *J1 
THE PROPERTY TAX OP THE CANTON DE VAUD %^ 



PUBL/SHEi) FOM MARyAMD UN/yERSITY 



BOSTON 

GEORGE H. KLLIS 141 FRANKLIN STREET 

lS$7 



The Ouarterly Journal of Economics 

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Econmnic History, Crilicism, and Speculation, 

and for tlie discussion of the important 

Quesiimis of ibe Day, 

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leaving to the writer ilie sole ntsponsibllity for matters of opinion. 

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and July 15, 

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SUSSa^/PT/ON P^iCE, -rii'n noiLAMS P£P ANNUM. 



CoKTiNTS OP No. I, OcToMfcR 15, iSS6. 

I. THE REACTION IN POLITICAL ECONOMY, 

It PRIVATE MONOPOLIES AND PUBLIC RIGHTS. 

HL SILVER BEFORE CONGRESS IN iSaG, 

NOTES AND MEMORANDA 

Silver a» * Re^laior of Prices 

The Afiihmeiici Geometric, aiid HannaDic Means. 

LegisUticm for L^bor Arbitral ion, 

CORRESPONDENCE: Letter from Pari*, 
RECENT PUBLICATIONS UPON ECONOMICS. 



Chaxics F. Dunbar 

Arthur T. H&dJejf 

S. Dmoa Horton 



Arthur Mangin 



VITAGNER ON THE PRESENT STATE OP POUTICAL ECONOMY. 
PRICES IN IRELAND. 



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F. A. WALKER, 

J. lawkence LAUGHLIN, 
SIMON NEWCOMB, 
WILLIAM SCHOFIELD, 
JOSEPH L WEEKS, 
A. MACFARLAND DAVIS, 
HAHOLD WHEELER, 

AHB OTHERS. 



THE 

QUARTERLY JOURNAL 



OF 



ECONOMICS 



J Aim ART, 1887 



AN HISTORICAL SKETCH OF THE KNIGHTS 
OF LABOR. 

All labor organizations have been founded on one of 
two fundamental ideas. First, among the ancient guilds, 
trades-unions, organizations of professional men, and 
wherever the members of a single vocation have asso- 
ciated themselves, the underlying idea has been that of 
the association of men of like employment. The theory 
that men who think alike should act together has practi- 
cally formed the basis of all organization, — civil and polit- 
ical as well as industrial and professional. This idea finds 
its origin in human nature, and belongs to the clannish- 
ness of the race. Founded on it, trades-unionism in Eng- 
land has flourished and grown powerful, really constitut- 
ing one of the great and most important economic factors 
in the industrial development of England. The trades- 
union in this country, while flourishing, has not attained 
any such magnitude or secured such influence as the like 
organization of the old country. This results from va- 
rious causes. The democratic character of our people. 



188 QUARTERLY JOURNAL OF ECONOMICS 

the mobility of labor, and the independence of the me- 
chanic can be cited as among the leading causes of the 
lack of growth of trades-unionism in America. Yet it has 
been growing stronger and stronger as the industrial rev- 
olution has advanced. 

The second idea underiying organization is that which 
ignores vocation, and seeks to harmonize all individual 
or separate interests in the interest of the whole. Society 
itself is founded on this principle; but it has not been 
applied to labor organizations, to any appreciable extent, 
until within the past fifty years. Since 1880 there have 
been two or three attempts in France, and in some other 
continental countries, to bring all workingmen, whether 
of one nation or of many, into harmonious association, 
each member everywhere seeking the good of the many. 
The principal instance of a labor organization based upon 
this broad principle was the International Association of 
Workingmen, popularly known as the "International," 
organized in London in the autumn of 1864, through the 
influence of two French delegates, Messrs. Tolain and 
Fribourg, — the first a chaser in bronze, and the second 
a decorative engraver, — who, visiting London at the time 
of the great International Exhibition of lb62, were im- 
pressed with the influence of the English labor organiza- 
tions. The International sought to associate workingmen 
wherever manufacturing had gained any notable foothold ; 
and the society grew for a while, but never at any time 
had a membership exceeding one hundred thousand, the 
best evidence giving the highest membership at fifty thou- 
sand. The International did not extend to the United 
States with suflScient force to involve any large number 
of the workingmen of this country, and it was not until 
1870 or 1871 that branches began to be organized here. 
The part which the International played in the struggles 
in Paris, in 1871, killed its influence with Americans, 
and, in fact, practically killed the society itself. It had 



HISTORICAL SKETCH OF THE KNIGHTS OF LABOR 189 

a stormy existence, and was wrecked finally by its being 
taken under the control of the radical socialists of Europe. 
Yet the International sowed some seed, principally through 
its broad foundation, and not through its practices. 

The second great attempt to organize labor on a broad 
basis — as broad as society itself, in which all trades 
should be recognized — was the Noble Order of Knights 
of Labor of America. This organization was born on 
Thanksgiving Day, 1869, in the city of Philadelphia, and 
was the result of the eflforts of Uriah S. Stephens, as the 
leader, and six associates, all garment-cutters. For sev- 
eral years previous to this date, the garment-cutters of 
Philadelphia had been organized as a trades-union, but 
had failed to maintain a satisfactory rate of wages in their 
trade. A feeling of dissatisfaction prevailed, which re- 
sulted, in the fall of 1869, in a vote to disband the union. 
Stephens, foreseeing this result, had quietly prepared the 
outlines of a plan for an organization embracing "all 
branches of honorable toil," and based upon education, 
which, through co-operation and an intelligent use of the 
ballot, should gradually abolish the present wages system. 

Stephens himself was a man of great force of character, 
a skilled mechanic, with the love of books which enabled 
him to pursue his studies during his apprenticeship, and 
feeling withal a strong affection for secret organizations, 
having been for many years connected with the Masonic 
order. He was born Aug. 3, 1821, in Cape May County, 
New Jersey. He was the descendant of some of the 
oldest settlers of his native county, and came of patriotic 
stock, his grandfather on his father's side having fallen 
in one of the battles of the Revolution. The mater- 
nal side, also among the earliest settlers of the county, 
were Quakers, and gave to the family the staid solidity 
of character and firmness of purpose for which it has 
always been noted. His parents, who were Baptists, in- 
tended him for the ministry, and his education was par- 



140 QUABTEBLT JOURNAL OF ECONOMICS 

tiallj shaped to that end; but, in the great panic and 
depression which swept over this country from 1886 to 
1840, the family suffered reverses, and young Stephens 
was indentured as an apprentice, to learn a trade and 
acquire a knowledge of mercantile business. His training 
as a skilled mechanic furnished the hint that afterward 
governed him all through his life as a student ; and this 
hint was that, when a subject is to be learned or a purpose 
to be accomplished, system, method, and competent means 
must be brought to bear and special training acquired to 
guide the way to success. At the close of his apprentice- 
ship, Stephens spent some time teaching school in his 
native State. In 1845, he removed to Philadelphia, where 
he resided most of the time during his life. In 1858, he 
made an extended tour of the West Indies, Central 
America, and Mexico, and up the Pacific Coast to Cali- 
fornia, where he lived nearly five years, gathering much 
information and a very rich experience, which were of 
great utility to him afterward in the reforms in which he 
took part. In 1868, he endeavored, by public speeches 
and through the press, by aid of the information which 
he had gathered during the five years previous, to attract 
the attention of capital and enterprise to the wealth of 
tropical and South American countries. In 1878, the 
National Greenback Labor Party, without solicitation, 
unanimously nominated him for Congress in the Fifth 
District of Pennsylvania. 

But, although Stephens possessed no strong political 
aspirations, he had paid great attention to the reforms of 
the day, and had caught the spirit of the agitation in the 
United States during the years 186M-69, through a liter- 
ature which had been caused by the growth of building 
societies in various centres, and especially at Philadelphia. 
He saw that corporate life, through which organization 
works, was the machinery with which organized capital 
had held labor in what he considered a partially enslaved 



HI8T0BICAL SKETCH OF THE KNIGHTS OF LABOR 141 

condition. Organized manhood, therefore, was his anti- 
dote, — a force wherewith to resist and overcome the com- 
binations of greed and selfishness, and the means whereby 
justice and right, the chief demand of labor, could be 
secured. With this schooling, Stephens stood out from 
the old trades-union system of organization, which in his 
particular case, that of the garment-cutters of Philadel- 
phia, had failed, as we have seen. He believed it was 
necessary to bring all wage-workers together in one organ- 
ization, where measures affecting the interests of all could 
be intelligently discussed and acted upon; and this he 
held could not be done in a trades-union. 

At the last session of the Garment-cutters' Union, and 
after the motion to disband had prevailed, Stephens in- 
vited the few members present to meet him, in order to 
discuss his new plan of organization. This meeting was 
held at the house of Mr. Stephens, 2347 Coral Street, 
Philadelphia, on the evening of Nov. 25, 1869. Stephens 
then laid before his guests his plan of an organization, 
which he designated " The Noble and Holy Order of the 
Knights of Labor." It was a new departure in labor or- 
ganization. The founder described what he considered a 
tendency toward large combinations of capital, and argued 
that the trades-union form of organization was like a bun- 
dle of sticks when unbound, — weak and powerless to 
resist combination. The remedies he advocated must 
come largely through legislation and a process of educa- 
tion on the part of wage-workers first, to fit them properly 
for the work of organization. To this end, he urged the 
creation of the Local Assembly as the primary school of 
labor. Stephens's great fiontrnlling ideas . may be . fozmu- 
lated as follows: first, that surplus labor always keeps 
wages down ; and, second, that nothing can remedy this 
evil but a purely and deeply secret organization, based 
upon a plan that shall teach, or rather inculcate, organiza- 
tion, and at the same time educate its membership to one 



142 QUABTERLT JOURNAL OF ECONOMICS 

set of ideas ultimately subversive of the present wages 
system. 

Mr. Stephens's associates, or those who agreed with him 
to form a secret society to take the place of the disbanded 
Garment-cutters' Union, were James L. Wright, Robert 
C. Macauley, Joseph S. Kennedy, William Cook, Robert 
W. Keen, and James M. Hilsee. At a subsequent meet" 
ing, held Dec. 28, 1869, upon the report of a Committee 
on Ritual, involving obligations and oaths, Mr. Stephens 
and his six associates subscribed their names to the obliga- 
tions ; and, when the ritual was adopted, Mr. James L. 
Wright moved that the new Order be named the 
"Knights of Labor." 

Mr. Stephens brought into the ritual of the new Order 
many of the features of speculative Masonry, especially 
in the forms and ceremonies observed. The obligations 
were in the nature of oaths, taken with all solemnity upon 
the Bible. The members were sworn to the strictest seC 
crecy. The name even of the Order was not to be di- 
vulged; and it was for a long time referred to in the 
literature of the Knights of Labor, in their circulars, meet- 
ings, reports, and conversation, as " Five Stars," five stars 
being used in all printing and writing to designate the 
name of the Order. There were also introduced into the 
ritual many classical expressions taken from the Greek. 
The scope of the ritual which was adopted is best under- 
stood, so far as its charges and lectures are concerned, by 
the following instructions as to the objects of the Order 
and the duty expected of every member as a Knight of 
Labor. These instructions have been given to every per- 
son ever admitted to the Order : — 

Labor is noble and holy. To defend it from degradation; to 
divest it of the evils to body, mind, and estate which ignorance and 
greed have imposed ; to rescue the toiler from the grasp of the selfish, 
— is a work worthy of the noblest and best of our race. In all the mul- 
tifarious branches of trade, capital has its combinations ; and, whether 



HISTORICAL SKETCH OF THE KNIGHTS OF LABOR 148 

intended or not, they crash the manly hopes of labor, and trample 
poor humanity in the dost. We mean no conflict with legitimate en- 
terprise, no antagonism to necessary capital ; bat men, in their haste 
and greed, blinded by self-interests, overlook the interests of others, 
and sometimes violate the rights of those they deem helpless. We 
mean to uphold the dignity of labor, to affirm the nobility of all who 
earn their bread by the sweat of their brows. We mean to create a 
healthy public opinion on the subject of labor (the only creator of 
values), and the justice of its receiving a full, just share of the values 
or capital it has created. We shall, with all our strength, support 
laws made to harmonize the interests of labor and capital, and also 
those laws which tend to lighten the ex^a ustiveness of toil. To 
pause in his toil, to devote to his own interests (sic), to gather a 
knowledge of the world's commerce, to unite, combine, and co-operate 
in the great army of peace and industry, to nourish and cherish, 
build and develop, the temple he lives in, is the highest and noblest 
duty of man to himself, to his fellow-man, and to his Creator. 

No details or general laws for the government of the 
Order appear to have been adopted until the formation of 
, the first Local Assembly in 1873 ; but the plan presented 
at the meeting in November, 1869, was heartily approved, 
and adopted by Stephens's associates. Meetings were held 
weekly ; and on Jan. 18, 1870, the new organization chose 
its oflScers to the several positions called for by the rit- 
ual, as follows: Venerable Sage, Past-officer, James L. 
Wright; Master Workman, U. S. Stephens; Worthy 
Foreman, Robert W. Keen; Worthy Inspector, William 
Cook; Unknown Knight, Joseph Kennedy. The office of 
Statistician was created February 3, and the position filled 
by the election of Robert C. Macauley. 

The ritual of the Order, as worked by this first associa- 
tion, which afterward became Local Assemblv No. 1, 
Knights of Labor, was neither printed nor written ; and it 
is probable that a copy is not now in existence in the form 
in which it was used in the early days of the Order. As 
already stated, it demanded that the utmost secrecy should 
be forever observed. The instructions under it, 6r the 
rules of government under it, excluded physicians from 



144 QUARTEBLT JOURNAL OF ECONOMICS 

the Order, because professional confidence might force the 
societies' secrets into unfriendly ears. The rule prohibit- 
ing the admission of physicians, however, was repealed at 
Detroit in 1881. Politicians were to be excluded, because 
the founders of the Order considered that their moral 
character was on too low a plane for the sacred work of 
the new Order ; and, besides, it was considered that pro- 
fessional politicians would not keep the secrets of the 
Order, if such secrets could be used for their own advan- 
tage. Men engaged in political work are not now excluded 
for that cause alone. Lawyers were to be excluded, and 
still are, because the founders considered that the logical, 
if not the practical, career of the lawyer is to get money 
by his aptitudes and cunning, which, if used to the advan- 
tage of one, must be at the expense of another, the lawyer 
himself existing in a legalized atmosphere which recog- 
nizes forms and precedents, and which unfits him for the 
peculiar work of the Order ; and, further, that he gains his 
livelihood by efforts not classified with the honest product 
of labor. Rumsellers were and are excluded, because the 
trade is not only useless, by being non-productive of arti- 
cles of use, but results in great suffering and immorality, 
causing workingmen more trouble than many or most of 
the other miseries of which they complain, and because 
the rumseller renders no equivalent whatever for money 
received. The founders also considered that those who 
sell or otherwise handle liquors should be excluded, be- 
cause such persons would be a defilement to the Order. 

In consequence of the close secrecy thrown around the 
new organization, it did not grow rapidly. Stephens, 
impressed with the Masonic ritual and that of the Odd 
Fellows, was unwilling to allow any change ; while many 
members, who did not particularly oppose the secrecy of 
the Order, thought that the workingman, as a rule, could 
not be brought to appreciate the classical character of the 
ritual. So the society struggled on, admitting now and 



HISTORICAL SKETCH OF THE KNIGHTS OF LABOR 145 

then a member, its affairs running smoothly, as a whole, 
but the name of the organization never divulged. The 
ritual was gradually extended, but for a long time not 
completed. By the First Quarterly Report of the Order, 
it is shown that it had a membership of twenty-eight. 

In May, 1870, the garment-cutters of Philadelphia in- 
augurated public meetings for the purpose of increasing 
the membership of the new association, questions of inter- 
est to the trade being discussed, but no allusion being 
made to the new Order. The results, however, were 
beneficial; for the Second Quarterly Report exhibits a 
membership of forty-three, and an increase of nine is 
shown by the Third Quarterly Report, the finances being 
in good condition. January 5, 1871, the First Annual 
Report showed a membership of sixty-nine in good stand- 
ing. During this year, Mr. Stephens and others carried 
on a considerable correspondence with the nail-cutters and 
coal-miners of Pennsylvania, with a view to increasing 
the influence of the Order by extending its membership 
outside of Philadelphia. In January, 1872, Mr. Stephens 
declined the nomination for a third term as Master Work- 
man, and was succeeded by Robert C. Macauley. 

Accounts differ as to the time when the first Local 
Assembly of the Knights of Labor was organized. The 
best evidence, however, that I have been able to gain 
designates it as early in 1873 in Philadelphia ; and it con- 
sisted of Mr. Stephens and his associates, who had strug- 
gled along in the initiative association from its inception 
in November, 1869. All attempts up to this time at 
organization outside of the original body had been unsuc- 
cessful. During 1872, what should now be called Local 
Assembly No. 1, — the original body, — although com- 
prised of skilled garment-cutters, had initiated a few 
plumbers, paper-hangers, and painters, with a view to 
their working for organization in their respective crafts. 
They were not called upon to pay dues ; nor were they 



146 QUARTERLY JOURNAL OF ECONOMICS 

allowed to vote, being called " sojourners." The second 
Local Assembly to be organized, being the first outside 
of the original body, consisted of ship-carpenters and 
calkers employed in Cramp's shipyard. This was soon 
after the complete organization of Local Assembly No. 1, 
and became Local Assembly No. 2. After this, the Order 
spread quite rapidly ; and twenty assemblies were organ- 
ized in Philadelphia during 1873, No. 3 being shawl- 
weavers; No. 4, carpet-weavers; No. 6, riggers; No. 6, 
carpet-weavers ; No. 7, stone-masons ; No. 8, bag-makers ; 
No. 9, machinists and blacksmiths ; No. 10, stone-cutters ; 
No. 11, wool-sorters ; No. 12, machinists and blacksmiths ; 
No. 13, tin-plate and sheet-iron workers; No. 14, steel- 
makers; No. 16, pattern-makers and moulders; No. 16, 
shopsmiths; No. 17, machinists, blacksmiths, and boiler- 
makers; No. 18, house-carpenters, ship-joiners, mill- 
wrights, and cabinet-makers ; No. 19, bricklayers ; No. 
20, gold-beaters. The first twenty-seven Local Assem- 
blies of the Order were all organized in the city of Phila- 
delphia, No. 28, composed of gold-beaters in New York 
City, being the first Local Assembly to be organized out- 
side of Philadelphia. Previous to January, 1876, fifty- 
two Locals had been organized in Philadelphia, and about 
two hundred and fifty in other parts of the country, prin- 
cipally in the mining regions of Pennsylvania, West Vir- 
ginia, Indiana, and Illinois. 

As already stated, the ritual being unwritten, and exist- 
ing only in the memory of the oflBcers of Local Assembly 
No. 1, when new Locals were founded, the oflScers of 
Assembly No. 1 were obliged to fill the positions until 
the ritual could be learned from word of mouth by the 
oflftcers of the new assemblies. This tedious method of 
communicating the ritualistic work necessitated some 
more complete organization ; and, to meet this necessity, 
the committee on the ritual of the original Assembly was 
extended so as to comprise a Committee on the Good 



HISTORICAL SKETCH OF THE KNIGHTS OF LABOR 147 

of the Order, to answer for all matters relating to the 
ritual. To it, also, were committed all matters of dispute 
arising in the Local Assemblies. This Committee on the 
Good of the Order very naturally constituted a board of 
appeal, and performed all the functions of a District As- 
sembly, and thus became practically the first District 
Assembly in the Order. The work of the committee, 
however, becoming very severe, it projected a ritual for 
a higher body, to be known as a District Assembly. 
With the growth of the Order and the extension of the 
number of Local Assemblies, the proposition of the Com- 
mittee on the Good of the Order of Local Assembly No. 1 
began to be thoroughly appreciated. Local Assembly 
No. 1, therefore, sent calls to all the Assemblies then in 
existence, requesting them to choose delegates for the 
purpose of founding a District Assembly, to consist of 
delegates from all the Local Assemblies. These delegates 
met in Philadelphia on Christmas Day, 1873, and organ- 
ized District Assembly No. 1; and, upon this organiza- 
tion, the committee of Local Assembly No. 1 surrendered 
all its general powers to the District Assembly.* 

Many Local Assemblies, as already stated, had been 
organized in Philadelphia at the time of the foundation 
of District Assembly No. 1, besides those created outside 
.^ of the city. It is worthy of note, therefore, that the 
Local Assemblies sending delegates upon the call of the 
original assembly to constitute a District Assembly com- 
prised but few of the Locals already organized in the city. 
They were as follows : garment-cutters, No. 1 ; black- 
smiths and boiler-makers, No. 17 ; carpet-weavers, No. 
28 ; ship-carpenters and calkers of Camden, No. 31 ; cigar- 

*'niere being no aasembly above the District AsBembly, no charters, of 
course, could be given to District Assemblies ; but when, in Angost, 1878, the 
General Assembly was organized, a charter, antedated to Christmas Day, 1873, 
was issued for District Assembly No. 1, organized as above stated. This was 
done that the doings of the original District Assembly prior to the institution 
of the (General Assembly might be legalized. 



148 QUABTEBLT JOUBNAL OF ECONOMICS 

makers, No. 53; shoemakers, No. 64; stove-makers, No. 
116 ; bolt-makers, No. 131 ; train-hands, No. 260 ; and 
another assembly. No. 262. 

The membership of the Order continued to increase 
during the years following the organization of District 
Assembly No. 1, so that the following District Assemblies 
had been created substantially in the same manner as had 
been District Assembly No. 1, by voluntary delegations 
from surrounding Local Assemblies : In New Jersey, Dis- 
trict Assembly No. 2 ; in Pittsburgh, No. 8 ; in Reading, 
No. 4; in Charleston, West Virginia, No. 5; in Akron, 
Ohio, No. 7; in Pittsburgh, No. 8; in West Elizabeth, 
No. 9 ; and, in various places, other District Assemblies 
had been created, so that the total number was about 
sixteen. But District Assembly No. 1 had, through the 
acquiescence of all concerned, been considered the head 
of authority. 

Late in 1877, the oflScers of District Assembly No. 1, 
following the example of its parent. Local Assembly No. 1, 
sent an invitation to all District Assemblies then in exist- 
ence to choose delegates for the organization of a General 
Assembly of the Knights of Labor, the proposition being 
that, should such a General Assembly be organized, it 
should have a constitution and be governed by salaried 
oflScers. These delegates met at Reading, Pennsylvania, 
January 1, 1878, and organized the first General Assembly. 
Mr. Stephens, the founder, was called to the chair, pending 
permanent organization. The delegates were in session 
four days, the following oflScers being chosen: Grand 
Master Workman, Uriah S. Stephens, of Philadelphia; 
Grand Worthy Foreman, Ralph Beaumont, of Elmira, 
New York; Grand Secretary, Charles H. Litchman, of 
Marblehead, Massachusetts ; Grand Assistant Secretary, 
John G. Laning, of Clifton, West Virginia ; Grand Treas- 
urer, Thomas M. Gallagher, of St. Louis, Missouri. 

Seven States were represented in this first General 



HISTORICAL SKETCH OF THE KNIGHTS OF LABOR 149 

Assembly; and the garment-cutters, miners, shoemakers, 
machinists, locomotive engineers, stationary engineers, 
glass-workers, moulders, printers, coopers, blacksmiths, 
boiler-makers, nail-packers, teachers, and carpenters were 
the bodies represented. District Assembly No. 16, of 
Scranton,* Pennsylvania, was represented by Terrence V. 
Powderly. 

This brings the history of the Order to one of its most 
critical periods. At the date of the formation of the 
General Assembly, only nine of the fifty-two Locals pre- 
viously organized in Philadelphia were working. All the 
others had lapsed, although they have been reorganized 
since. Only eleven District Assemblies were working at 
the date of the formation of this first General Assembly. 
Mr. Stephens, the founder, was the first Master Workman 
of Local Assembly No. 1, first District Master Workman 
of District Assembly No. 1, and first Grand Master Work- 
man of the General Assembly. The order was now in 
complete working condition, organized on the basis of all 
governments, — the Local Assembly, or primary formation, 
like towns, communes, and townships; the District As- 
sembly, comprising so many Locals, following the State 
and county organizations; and the General Assembly 
being the grand federal head of all. And yet at this 
time, in January, 1878, when the whole machinery of the 
organization was perfected so far as bodies were con- 
cerned, there had been no general declaration of prin- 
ciples. The Order had been intensely secret, as much so 
as the society of the Masons or of the Odd Fellows. The 
name of the Order began to be whispered about; but, 
beyond the name and most exaggerated accounts of the 
membership, nothing was known of the Knights of Labor. 
The membership must have been small, — indeed, not 

*The District AflMmblj organized in West YirgimA and the District 
Assembly orgranized at Scranton, PennsylTania, weie, throngh some mistake, 
both numbered 5. After the formatioii of the QenenJ Assembly, the District 
at Scranton was assigned No. 16. 



160 QUARTERLY JOURNAL OF ECONOMICS 

coTinting far into the thoiisands. In fact, it did not reach 
fifty thousand until five years later, although, at the organ- 
ization of the first General Assembly, rumor placed the 
membership at eighty thousand. This may have come 
from the fact that, about this time, the strict secrecy in 
the workings of the Order, and the fact that the obliga- 
tions were oaths taken on the Bible, brought on a conflict 
with the Catholic Church, and during the years 1877-78 
many Local and several District Assemblies lapsed. This 
emergency, which threatened the existence of the Order, 
necessitated a special session of the General Assembly, 
which was held at Philadelphia in June, 1878. At this 
session, resolutions to make the name of the Order public, 
to expunge from the ritual all Scriptural passages and 
quotations, and to modify the initiatory exercises so as 
to remove the opposition coming from the Church, were 
submitted to the vote of the Locals and the Districts 
of the country. Through the influence of these resolu- 
tions, measures were adopted whereby a satisfactory con- 
ciliation was brought about, on the general ground that 
the labor movement could consistently take no interest 
in the advocacy of any kind of religion, nor assume any 
position for or against creeds. The prejudices against the 
Knights of Labor on account of Catholic opposition then 
naturally, but gradually, disappeared ; and the Order took 
on new strength, until there were in 1879 twenty-three 
District Assemblies and about thirteen hundred Local 
Assemblies in the United States. Prior to this emer- 
gency, much attention had been paid to what is known in 
secret societies as degree work ; and the system of grad- 
uation from oflBce to oflftce took regular form, and was 
carried out, as in the older secret institutions. The 
degree work, however, is not now known in the Order, 
there being no degrees in the sense of secret organizations. 
The second annual session of the General Assembly was 
held at St. Louis, January 14, 1879. The business trans- 



HISTORICAL SKETCH OF THE KNIGHTS OF LABOR 151 

acted at this session related to general legislation for per- 
fecting the organization. It was also decided that the 
sessions of the General Assembly thereafter should be held 
in September of each year. This session granted to the 
District Assemblies the privilege of announcing to the 
public the name of the Order, requiring a two-thirds 
vote, however, of the delegates constituting the District 
Assembly passing upon the matter. Mr. Stephens was 
re-elected Grand Master Workman, Mr. Litchman being 
retained as Grand Secretary ; while James McGinness, of 
Kentucky, was chosen Grand Assistant Secretary, and 
William H. Singer, of Missouri, took the place of Grand 
Treasurer. 

The third annual session of the General Assembly was 
held at Chicago, in September, 1879, when the federal 
body busied itself with general legislation, and was called 
upon to consider the resignation of Mr. Stephens as Mas- 
ter Workman. This resignation, urgently pressed by Mr. 
Stephens, was accepted; and Hon. Terrence V. Pow- 
derly * was elected Grand Master Workman in his place. 

*Terreii06 V. Powderly was born in CarbondalOf Lnxeme County, Penn., 
Jan. 22, 1849, his parents bein^ among the first settlers of that city. Thej 
were Irish, and he was one of nine children. He attended school six years, 
and, when thirteen years old, went to work as switch-tender for the Hudson 
& Delaware Canal Company. When seventeen years of age, he went into the 
machine-shop of the company, learning the trade of a machinist, and proving 
himself an intelligent, expert, and faithful workman. At nineteen, he removed 
to Scranton, where he secured a situation in the machine-shops of the Dela- 
ware, Lackawanna & Western Railroad Company. Shortly after coming to 
Scranton, Mr. Powderly became a member of the Machinists and Blacksmiths' 
Union No. 2, the members of which, soon recognizing his abilities, elected him 
president, which position he held for two years, after which he was elected 
corresponding secretary, in which capacity he served, with the exception of 
one year, until 1880. During the' panic of 1873, he, among others, was sus- 
pended from the employment of the railroad company for the supposed reason 
of his active connection with the Machinists and Blacksmiths' Union. He 
then removed to Galion, Ohio, where he worked but a short time, when he 
was again discharged. Mr. Powderly then obtained employment in Oil City, 
i<nning Machimsts and Blacksmiths' Union No. 6, of that place, by which he 
was elected a delegate to a district convention of the unions of Pittsburgh, 
Meadville, Titusville, and Oil City, the convention being held at Franklin. 



162 QUARTERLY JOURNAL OF ECONOMICS 

Richard GriflSths, of Illinois, was chosen Grand Worthy 
Foreman; and Mr. Litchman re-elected as Grand Sec- 
retary, the Grand Assistant Secretary being Gilbert 
Rockwood, of Boston, and the Grand Treasurer Dominick 
Hammer, of Ohio. At the time of the meeting of this 
session, the reports showed that seven hundred Lfocal 
Assemblies had been chartered. The Assembly repre- 
sented, however, but one hundred and two. The mem- 
bership was stated to be five thousand in good standing ; 
but the routine of the Order had not been perfected, and 
the reports of membership were very imperfect. It is 
therefore reasonable to assume that a much larger mem- 
bership existed than was shown by the reports. 

The next annual meeting of the General Assembly (the 
fourth) took place at Pittsburgh, in September, 1880, and 
consisted of forty delegates. At this session, strikes were 
denounced as injurious, and as not worthy of support, 
except in extreme cases. No important special legislation 
other than this, however, was enacted ; but the machinery 

He was again elected a delegate to represent the same onions at Lonisville, 
where the oonrention of the Machinists and Blacksmiths* International Union 
was held in September, 1874. Soon after this, he became a member of the 
Industrial Brotherhood of the United States, and was commissioned deputy 
president for Western Pennsylvania. While acting in this capacity, he organ- 
ized several Assemblies of the Industrial Brotherhood in the vicinity of Htts- 
burgh. Returning then to Scranton, he was employed by the Lackawanna 
Coal and Iron Company in putting up the machinery of their steel works. 
During the same year, Mr. Powderly joined the Knights of Labor; and, 
shortly after his connection with that Order, was elected secretary of the 
District Assembly to which his Local Assembly belonged. After leaving the 
Lackawanna Coal and Iron Company, he was engaged by the Dickson Manur 
f acturing Company in their Cliff Locomotive Works, and, soon after enterii^ 
their employment, was promoted to the f oremanship of one of the departments. 
Becoming interested in the Greenback-Labor Party, he took an active part in 
the campaign for Luzerne County, calling the County Convention. He trav- 
eUed on foot from one end of the county to the other, distributing ballots and 
documents calculated to encourage the workers. The county of Lnzeme is 
seventy-five miles in length ; yet Powderly acted as secretary and chairman of 
the committee, doing his work on foot, having no money with which to pay 
railroad fare. During this campaign, he contracted a severe cold, from which 
he has never fully recovered. His eyesight also failed from over-exertion. As 
a recognition of his services, he secured the Qreenback-Labor nomination for 



HISTORICAL SKETCH OF THE KNIGHTS OF LABOR 158 

for the work of the Order was further perfected, and 
Grand Master Workman Powderly was re-elected. 

The fifth session was held in September, 1881, at 
Detroit. This session had to deal with one of the most 
important actions in the history of the Order. The Gen- 
eral Assembly then declared that on and after January 1, 
1882, the name and objects of the Order should be made 
public. It also declared that women should be admitted 
upon an equal footing with men. A strong committee 
was appointed to revise the constitution and the ritual, 
and instructed to report at the next annual session. A 
co-operative law was passed (originally made compulsory, 
but changed to voluntary payment at the New York 
session the next year). A benefit insurance law was also 
passed, and an entire change of the ritual was advised. 
This action was brought about because the Order did not 
grow in numbers ; and, from all quarters, the desire was 
expressed to make the name and principles of the Order 
public. In fact, many of the District Assemblies had 

mayor of Scrmnton in 1877, and was elected by a majority of fiye hundred and 
thirty-one. He was re-elected in 1878, in which year he was nominated by 
acclamation for lientenant-groyemor of PennsylTania on the National Green- 
back-Labor ticket, bat declined the nomination. He was a third time offered 
the nomination for mayor of Scranton, with every prospect of re-election; bat, 
being now General Master Workman of the Knights of Labor, he f oand the 
doties of the latter position too arduous to admit of his holding any other 
office, and so declined. In 1878, Mr. Powderly gaye considerable attention to 
the study of the law, and while mayor of Scranton obtained a very good legal 
training and habit. Since his induction into the Order of the Knights of Labor, 
Mr. Powderly has giren it his entire attention and a yast amount of study. He 
found it a close, oath-bound body ; but at the Detroit General Assembly, in 
1881, he urged the abolition of oaths and the remoyal of the obligation of 
secrecy. This did away the chief objection which the Catholic clergy had 
made to it, and strengthened the Order among the workingmen. 

The resignation of Mr. Stephens at the Chicago session of the General 
Assembly, in 1879, was for reasons entirely honorable to Bir. Stephens and per- 
fectly legitimate, although, in some degree, the change in the head of the 
Order was due to the fact that Mr. Stephens was a thorough belieyer in the 
policy of maintaining its secrecy, while Mr. Powderly adyocated the necessity 
of publicity. The memory of Mr. Stephens is held sacred by all Knights of 
Labor, and the Richmond conyention appropriated $10,000 for the erection of 
a home for his family. 



164 QUARTERLY JOURNAL OF ECONOMICS 

been working openly. Mr. Powderly was re-elected 
Grand Master Workman. 
^ The sixth annual assembly was held in New York in 
September, 1882, the chief business consisting in the dis- 
cussion, and finally in the adoption, of a revised constitu- 
tion and ritual. At this Assembly, what is known as the 
** strike" element — that is, the supporters and believers 
in strikes — was in the majority, and laws and regulations 
for supporting strikes were adopted ; and the co-operation 
of members was suppressed by a change of the co-opera- 
tive law of the Order. Mr. Powderly was re-elected 
Grand Master Workman. The Order now began to be 
known, and many exaggerated accounts found their way 
into the press. These exaggerated accounts caused the 
Order to grow rapidly, General Master Workman Pow- 
derly stating at this convention that 

One cause for the tidal wave of strikes that has swept over our 
Order oomes from the exaggerated reports of the strength of the 
Order, numerically and financially, given by many of our organizers. 
Such a course may lead men into the Order, but by a path that leads 
them out again; for, as soon as they become convinced that they 
were deceived, they lose confidence in the Order. 

In February, 1882, Past Master Workman Stephens 
died at Philadelphia. 
"^ Tlie seventh annual session of the General Assembly 
was held at Cincinnati in September, 1883, and consisted 
of one hundred and ten representative delegates. This 
session lasted for eight days. This large representation 
was owing to the rapid growth of the Order since the 
name and objects had been made public. The legislation 
at this session was not particularly important, although 
the discussions were so. The strike element was less 
fully represented than before. The laws were amended 
both by changes and additions, and members were in- 
structed to discuss in their District and Local Assemblies 
the eight-hour question and the institution of Bureaus of 



HISTORICAL SKETCH OF THE KNIGHTS OF LABOB 155 

Labor Statistics. At this meeting, the title of the officers 
of the General Assembly was changed from " Grand " to 
" General." The membership of the Order was reported 
at this Assembly to be, in round numbers, fifty-two thou- 
sand. 

In September, 1884, the eighth annual Assembly con- 
vened at Philadelphia. Strikes and boycotts were de- 
nounced, the declaration of principles was revised and 
improved, and the constitution and general legislation 
amended. The date of the meeting of the General Assem- 
bly was changed to October. The membership of the 
Order was reported at seventy-one thousand. 

The ninth General Assembly convened at Hamilton, 
Ontario, in October, 1885, and adopted legislation looking 
to the prevention of strikes and boycotts. The session 
lasted eight days, the membership being reported at one 
hundred and eleven thousand. In this year, also, a spe- 
cial session was held in Cleveland, Ohio, in May, for the 
purpose of taking action looking to the protection of the 
Order against unauthorized strikes and boycotts by Dis- 
trict and Local Assemblies. This session lasted from 
May 25 to June 8. Long discussions relative to the atti- 
tude of trades-unions consumed much time. The two 
ideas on which labor organizations are founded, as stated 
in the beginning of this sketch, were brought into sharply 
defined antagonism, the trades-unions struggling to pre- 
serve their trade organizations as against what was consid- 
ered the encroachment of the Knights of Labor, while the 
Knights of Labor contended that their Order embraced 
higher and grander principles than those underlying the 
organization of trades-unions. 

The tenth annual session of the General Assembly was 
held at Richmond, Virginia, in October, 1886. Not much 
important legislation was added to the laws of the Order, 
and the constitution was in no way changed. Mr. Pow- 
derly was re-elected General Master Workman, as he had 



156 QUABTEBLT JOUBNAL OF ECONOMICS 

been annuallj since his elevation to that office. From a 
source entirely trustworthy, I am able to state that at 
the time of the meeting of the Richmond Assembly there 
were about one hundred and sixty District Assemblies and 
nearly nine thousand Local Assemblies ; while the mem- 
bership was, in round numbers, seven hundred and thirty 
thousand. The growth firom the number reported in July, 
1885, — one hundred and eleven thousand, in round num- 
bers, — to the next annual meeting, it is seen, was very 
rapid. No trade organization anywhere can show such 
wonderful increase. Mr. Powderly, in his testimony be- 
fore the Strike Investigating Committee of Congress, April 
21, 1886, made the following statement as to membership : 
" Our present membership does not exceed five hundred 
thousand, although we have been credited with five mill- 
ion." This statement indicates a growth of nearly four 
hundred thousand in one year. The growth was so rapid 
that the Executive Board of the Order felt constrained to 
call a halt in the initiation of new members. To-day 
(December 10, 1886), while the membership has fallen off 
in some localities, from various causes, in the whole coun- 
try it has increased, and is, according to the best inside 
estimates, not much less than one million. The Order 
occupies nearly every State with its Local and District 
Assemblies. 

I have thus sketched the origin and growth of the 
Order. This is its material history, rapidly drawn. Its 
intellectual history is of far more importance to the public, 
and is to be found in the declaration of principles, the 
constitution, and the legislation of the Knights of Labor. 
Prior to 1878, no declaration of principles had been made. 
The unwritten law of the Order was observed, the mem- 
bership was small, and Local and District Assemblies few. 
The officers initiating members or installing officers could 
easily impart the precepts and the principles of the un- 
written law of the Order; but, as it grew in numbers and 



HISTORICAL SKETCH OF THE KNIGHTS OF LABOR 157 

its influence extended over vast areas, written laws and 
written declarations became not only essential for the 
well-being of the Order, but a necessity for its working. 
Prior to the abandonment of the secrecy of the workings 
of the Order in 1881, when the oath-bound obligations 
were abolished and the simple pledge took its place, a 
declaration of principles had been adopted. This declara- 
tion, adopted at the meeting of the General Assembly 
at Reading in January, 1878, embodied the first fifteen 
of the articles printed below. Other articles have been 
adopted from time to time, so that the Ejiights of Labor 
now stand upon the following 

DBCLARATION OF PRINCIPLBS. 

The alarming development and aggressiyeness of great capitaliBts 
and corporations, unless checked, will ineyitably lead to the pauperi- 
zation and hopeless degradation of the toiling masses. 

It is imperative, if we desire to enjoy the full blessings of life, 
that a check be put upon unjust accumulation, and the power for evil 
of aggregated wealth. 

This much desired object can be accomplished only by the united 
efforts of those who obey the divine injunction, <' In the sweat of thy 
face shalt thou eat bread." 

Therefore, we have formed the Order of Knights of Labor, for the 
purpose of organizing and directing the power of the industrial 
masses, not as a political party, for it is more, — in it are crystallized 
sentiments and measures for the benefit of the whole people ; but it 
should be borne in mind, when exercising the right of suffrage, that 
most of the objects herein set forth can only be obtained through leg- 
islation, and that it is the duty of all to assist in nominating and sup- 
porting with their votes only such candidates as will pledge their 
support to those measures, regardless of party. But no one shall, 
however, be compelled to vote with the majority ; and, calling upon all 
who believe in securing '< the greatest good for the greatest number " 
to join and assist us, we declare to the world that our aims are : — 

L To make industrial moral worth, not wealth, the true standard 
of individual and national greatness. 

n. To secure to the workers the full enjoyment of the wealth they 
create, sufficient leisure in which to develop their intellectual, moral, 
and social faculties, all of the benefits, recreation, and pleasures of 
association; in a word, to enable them to share in the gains and 
honors of advancing civilization. 



158 QUARTERLY JOURNAL OF ECONOMICS 

In order to secure these results, we demand at the hands of the 
State: — 

nL The establishment of Bureaus of Labor Statistics, that we 
may arriye at a correct knowledge of the educational, moral, and 
financial condition of the laboring masses. 

IV. That the public land, the heritage of the people, be reserred 
for actual settiers, not another acre for railroads or speculators ; and 
that all lands now held for speculative purposes be taxed to their full 
yalue. 

v. The abrogation of all laws that do not bear equally upon capi- 
tal and labor, and the removal of unjust technicalities, delays, and dis- 
criminations in the administration of justice. 

YI. The adoption of measures providing for the health and 
safety of those engaged in mining, manufacturing, and building indus- 
tries, and for indemnification to those engaged therein for injuries re- 
ceived through lack of necessary safeguards. 

VIL The recognition by incorporation of trades-unions, orders, 
and such other associations as may be organized by the working 
masses to improve their condition and protect their rights. 

VIII. The enactment of laws to compel corporations to pay their 
employees weekly in lawful money for the labor of the preceding 
week, and giving mechanics and laborers a first lien upon the product 
of their labor to the lull extent of their wages. 

IX. The abolition of the contract system on national. State, and 
municipal works. 

X. The enactment of laws providing for arbitration between em- 
ployers and employed, and to enforce the decision of the arbitrators. 

XL The prohibition by law of the employment of children under 
fifteen years of age in workshops, mines, and factories. 
Xn. To prohibit the hiring out of convict labor. 
Xm. That a g^raduated income tax be levied. 

And we demand at the hands of Congress : — 

XIY. The establishment of a national monetary system, in which 
a circulating medium in necessary quantity shall issue direct to the 
people, without the intervention of banks ; that all the national issue 
shall be full legal tender in payment of all debts, pubhc and private ; 
and that the government shall not guarantee or recognize private 
banks or create any banking corporations. 

XV. That interest-bearing bonds, bills of credit, or notes shall 
never be issued by the government ; but that, when need arises, the 
emergency shall be met by issue of legal-tender, non-interest-bearing 
money. 



HISTORICAL SKETCH OF THE KNIGHTS OF LABOR 169 

XVl. That the importation of foreign labor nnder contract be 
prohibited. 

XVn. That, in connection with the post-office, the government 
shall organize financial exchanges, safe deposits, and facilities for 
deposit of the sayings of the people in small snms. 

XVJLLL That the government shall obtain possession, by purchase, 
nnder the right of eminent domain, of all telegraphs, telephones, and 
railroads ; and that hereafter no charter or license be issued to any 
corporation for construction or operation of any means of transportrog 
intelligence, passengers, or freight. 

And, while making the foregoing demands upon the State and 
national government, we will endeavor to associate our own labors : — 

XIX. To establish a co-operative institution, such as will tend 
to supersede the wage system, by the introduction of a co-operative 
system. 

XX. To secure for both sexes equal pay for equal work. 

XXL To shorten the hours of labor by a general refusal to work 
for more than eight hours. 

XXn. To persuade employers to agree to arbitrate all differences 
which may arise between them and their employees, in order that the 
bonds of sympathy between them may be strengthened, and that 
strikes may be rendered unnecessary. 

With numerical success came the necessity for consti- 
tutional regulations. The General Assembly which met 
at Reading, January 1, 1878, largely through the influence 
of Mr. Powderly adopted a constitution for the General 
Assembly, for District Assemblies, and for Local Assem- 
blies. This has been subject to revision, however, at 
every General Assembly since, except the Richmond As- 
sembly in 1886. The constitution adopted for Local 
Assemblies — they constituting the primary organizations 
of the Order — contains a preamble, declaring substan- 
tially that the Local Assembly is not a mere trades-union 
or beneficial society, but that it is more and higher, gath- 
ering into one fold all branches of honorable toil, without 
regard to nationality, sex, creed, or color, not founded 
simply to protect one interest or to discharge one duty, 
however great the one interest or the one duty may be. 
It declares that the Local Assembly seeks not only to 



160 QUARTEBLT JOURNAL OF ECONOMICS 

maintain and foster all the fraternal characteristics of the 
single trades-union, but by the multiplied power of the 
union to protect and assist all. It further declares: — 

The Local Assembly aims to assist members to better their condi- 
tion, morally, socially, and financially. It is a business firm, eyeiy 
member an equal partner, as much so as a oonmiercial house or a 
manufacturing establishment. All members are in duty bound to 
put in their equal share of time and money. The officers elected must 
not be expected to *' run it," and the rest of the partners do nothing, 
as in the case of mere societies. While acknowledging that it is 
sometimes necessary to enjoin an oppressor, yet strikes should be 
avoided whenever possible. Strikes, at best, only afEord temporary 
rdief ; and members should be educated to depend upon thorough 
organization, co-operation, and political action, and, through these, 
the abolishment of the wage system. Our mission cannot be accom- 
plished in a day or generation. Agitation, education, and organisa- 
tion are all necessary. Among the higher duties that should be 
taught in every Local Assembly are man's inalienable inheritance and 
right to a share, for use, of the soil ; and that the right to life car- 
ries with it the right to the means of living ; and that all statutes 
that obstruct or deny these rights are wrong, unjust, and must give 
way. Every member who has the right to vote is a part of the 
government in the country, and has a duty to perform ; and the 
proper education necessary to intelligently exercise this right, free 
from corrupting influences, is another of the higher duties of a Local 
Assembly. In short, any action that will advance the cause of hu- 
manity, lighten the burden of toil, or elevate the moral and social 
condition of mankind, whether incorporated in the constitution or 
not, is the proper scope and field of operation of a Local Assembly. 

The usual constitution of the Local Assembly consists 
of thirteen articles, and is very much like the constitutions 
of all organizations, except it is more elaborate. 

Article I. provides that a Local Assembly of the Order 
of the Klnights of Labor shall be known by a name and the 
number assigned by the General Secretary-Treasurer, and 
shall be composed of not less than ten members, at least 
three-fourths of whom must be wage-workers or farmers, 
which proportion is to be maintained for all time. The 
same article excludes from membership all persons who 



HISTORICAL SKETCH OF THE KNIGHTS OF LABOR 161 

sell, or who make a living or any part of it by the sale of^ 
intoxicating drink, either as manufacturer or dealer or 
agent, or through any member of the family. It also ex- 
cludes lawyers, bankers, professional gamblers, and stock- 
brokers. The details relating to methods of securing 
membership are given very fully, but have no particular 
public value. 

Article II. relates to travelling and transfer cards and 
means for severing membership with a Local Assembly 
for the purpose of joining some other, and kindred regula- 
tions. 

Article III. relates to dues and assessments. 

Article IV. designates the o£5cers and defines their 
duties. The officers of a Local Assembly consist of a 
Master Workman, Worthy Foreman, Venerable Sage, Re- 
cording Secretary, Financial Secretary, Treasurer, Worthy 
Inspector, Almoner, Statistician, Unknown Knight, Inside 
Esquire, Outside Esquire, and Insurance Solicitor, and 
three Trustees, who shall be custodians of all property 
and funds of the Local Assembly. These officers, with 
the exception of the Venerable Sage, are elected semi-an- 
nually by ballot, or by acclamation, should there be but 
one candidate. 

The remainder of the articles relate to suspended mem- 
bers, Local Courts for the trial of grievances, misde- 
meanors, and violations of the laws of the Order, and the 
minor duties of the Assembly. 

The constitution for District Assemblies consists of ten 
articles. Article I. provides that a District Assembly 
shall be composed of duly accredited delegates from at 
least five Local Assemblies, each Local being entitled to at 
least one delegate to the District Assembly ; but the repre- 
sentation may be fixed by the District Assembly to suit its 
interests. A District Assembly is the highest tribunal of 
the Order of the Ejiights of Labor within its jurisdiction, 
under the general laws of the Order. It has power to 



162 QUARTEBLT JOURNAL OF ECONOMICS 

levy assessments for its maiutenance upon all Locals com- 
posing the District Assembly and adopt rules and regula- 
tions for the government of trade and local affairs. It has 
power to establish Local Assemblies in the territory gov- 
erned by it. 

Article II. provides for the election and certification of 
delegates from the Local Assemblies, and regulates their 
attendance. 

The officers and their duties are designated under Arti- 
cle III., the officers being similar to those of the Local 
Assembly in name, except the word " District " is placed 
before the title, as " District Master Workman," and the 
like ; the officers constituting a Committee of Superin- 
tendence for their District, to which reference is made as 
to authority and modes of working, for instructions and 
advice. 

Article IV. provides for District Courts, to be chosen 
annually at each District Assembly, the duty of such a 
court being to review and determine all cases appealed 
from the court of a Local Assembly ; and there is a right 
of appeal from the decision of such District Court to the 
General Assembly. This article also provides for the dis- 
cipline of the Order and for the government of members. 

Articles V. and VI. relate to matters of detail which 
need not be stated. 

Article VII. has more interest for the public, and is of 
more vital importance than any other. It relates to strikes 
and arbitration, and in full is as follows : — 

Section 1. District Assemblies may adopt such rules and regula- 
tions iu regard to strikes as they deem best, but no strike shall be en- 
tered into or authorized until every possible effort has been made to 
settle the difficulty by arbitration. Thorough organization is essen- 
tial for successful arbitration ; and, where arbitration fails, strikes, as 
a rule, are failures. The first duty, therefore, of Locals and Districts, 
is to perfect the organization of our Order. 

Section 2. An Executive Board shall be established in each Dis- 
trict Assembly, who shall have power to accept or reject the terms 



HISTORICAL SKETCH OF THE KNIGHTS OF LABOR 163 

offered by the employers in any contemplated strike or lock-out affect- 
ing the District Assembly or any of its Locals, subject to such laws as 
the District Assembly may have adopted. 

Articles VIII., IX, and X. relate to routine business. 

The constitution of the General Assembly is rather an 
imposing document. It consists of twenty articles, but 
reference need be made only to those of importance to the 
public. 

Article I. defines the name, jurisdiction, and member- 
ship of the Order. It declares that the body shall be 
known as "The General Assembly of the Knights of 
Labor of America," and shall be composed of representa- 
tives, or alternates, chosen by the District Assemblies, each 
District Assembly being entitled to one representative (or 
alternate) for the first one thousand members or less, as 
shown upon the reports for the quarter ending July 1st of 
each year, and one for each additional one thousand mem- 
bers, or majority fraction. Local Assemblies attached to 
the General Assembly are also entitled to representation 
in the latter, under proper regulations. The General 
Assembly has full and final jurisdiction, and is the 
highest tribimal of the Order of the Knights of Labor. 
It alone possesses the power and authority to make, 
amend, or repeal the fundamental and general laws of 
the Order; finally to decide all controversies arising in 
the Order; to issue all charters to State, District, and 
Local Assemblies, and to issue travelling and transfer 
cards, and all supplies requiring uniformity; to prohibit 
the sale of intoxicants at entertainments given by assem- 
blies of the Order. And it can also tax the members of 
the Order for its maintenance. 

Articles IV. and V. classify the officers, their terms of 
office, and their duties. All elections must be by ballot, 
unless there be but one candidate. The officers are 
elected at each annual session of the General Assembly ; 
and their titled correspond almost completely with those 



164 QUABTEBLT JOURNAL OF ECONOMICS 

of the Local and District Assemblies, with the exception 
that the word " General " takes the place of " District," as 
" General Master Workman," " General Worthy Fore- 
man." 

Article VI. provides for the revenues of the General 
Assembly, and declares that it shall be derived as follows : 
For charters for District Assemblies, $10 ; for charter and 
supplies for Local Assemblies, $16 ; for charter and sup- 
plies for a Local Assembly composed wholly of women, 
$11 ; and the same for a charter upon the reorganization 
of a lapsed Local. Various fees are also provided for 
other services, as for duplicates. In addition to these 
revenues, each Local Assembly shall pay direct to the Gen- 
eral Treasurer six cents per quarter for each member in 
good standing upon the books upon the first days of Jan- 
uary, April, July, and October of each year. 

Article VIII. provides for a co-operative fund, the 
uses of which are defined in Article XVII., the grand 
object of the Order being to introduce the principles of 
co-operation in all directions, not only in their own work 
and obligations, but in productive and distributive enter- 
prises. The views of the Order in this respect are well 
illustrated by the fact that no officer gives bonds, the 
Knights considering that their Treasurer is their Treas- 
urer, responsible to them and they responsible for him. 
As, for instance, should the General Treasurer embezzle 
$100,000 of the funds of the Order, and the Order con- 
sists of one million members, each member is bondsman 
in the sum of ten cents. This works no hardship to any 
one; while, under the old competitive system, some 
bondsman or a few bondsmen would be obliged to pay the 
$100,000, that the one million might save ten cents each. 
Such practice the Knights regard as rank injustice. Their 
practice in this respect is in direct accordance with their 
motto, — ** That is the most perfect government in which 
an injury to one is the concern of all." 



HISTORICAL SKETCH OF THE KNIGHTS OF LABOR 165 

Article XV. establishes an ** Assistance Fund," and re- 
quires that each Local Assembly shall set apart for the 
purposes of this fund the sum of five cents per month for 
every member in good standing. In this article occurs 
a section as follows : " No strike shall be declared or en- 
tered into by any member or members of any Local As- 
sembly without the sanction of the District or Local 
Assembly, as the case may be." This section, with the 
one given from the constitution of the District Assembly, 
stands as the only constitutional declaration of the 
Knights of Labor relative to strikes. At the special ses- 
sion, held at Cleveland in May, 1886, a temporary rule 
was established, indicated by the following report of a 
committee to whom were referred proposed amendments 
relative to strikes: — 

That before a strike is ordered or entered upon by any Local 
Assembly attached to the General Assembly, or any Trade Assembly, 
District Assembly, or State Assembly, a secret ballot shall be taken 
of all the membm in good standing composing the same ; and in no 
case shall a strike be ordered or entered upon without two-thirds of 
the votes cast are in favor of the strike ; and that a secret bfdlot shall 
be taken during the strike whenever the General Assembly, Trade 
Assembly, District Assembly, or State Assembly Executive Board 
shall order; and, should the number voting in favor of continuing 
fall below a majority, the best possible terms shall be sought, and 
the strike declared off. 

That no strike shall be entered upon or sanctioned by any Local, 
Trade, District, or State Assembly, when aid, financial or otherwise, 
may be required from outside such Assembly, until the General Exec- 
utive Board shall have been represented by one or more of its mem- 
bers, or assistants, in an effort to settle the pending difficulty by 
arbitration, and then only by order of the General Executive Board. 

Any strike entered upon without such order by the General 
Executive Board shall receive no assistance, financial or otherwise, 
from the Order outside of such Assembly; nor shall any appeal to 
the Order for such aid be permitted. 

Representative Foster, of Massachusetts, amended by adding 
"when over ten members are affected by the strike." 

Representative Buchanan, of Colorado, further amended, which 



166 QUARTERLY JOURNAL OF ECONOMICS 

WM accepted by Bepresentatiye Foster: ^ when over twenty-fiTS per- 
sons are obliged to quit work on account of the strike/^ So ordered. 
The original motion, as amended, was then adopted. 

Whatever force there was in this change, it fell with the 
meeting of the Richmond Convention, so that now the 
law of the Order stands as stated. 

From the formation of the General Assembly in 1878 
up to 1888 there was a strong element in the Order in 
favor of supporting strikes, and strike-funds were raised 
by a tax on the members. Meanwhile, the more advanced 
thinkers in the Order, led by Mr. Powderly, were trying 
to educate the members to use other means for the settle- 
ment of labor difficulties, and so far succeeded that at the 
Cincinnati session, in 1883, the strike-laws were made so 
rigid that they practically amounted to a prohibition of 
strikes, so far as the support of the Order was concerned. 
The laws now in force do not permit the support of a 
strike by the whole Order. A lock-out, where members 
are refused employment simply because they are members, 
can be supported. A L ocfd or JDistricl. Assembly may 
ordej^a local, strike. If called u pon^^ the General Execu- 
tive Board may endeayor ta effect a . ^afittlfimentj^or^Jf . 
the strike threatens to involve the interests of the whole 
Order, then the Executive Board may step in and take 
charge, to protect the Order. The Executive BoatdJpes 
not of its own accord interfere until the strike oi-boycott 
threatens to work injury to the whole Order. 

Article XVI. provides for a Benefit Insurance Associa- 
tion of the Knights of Labor of America. It is not com- 
pulsory upon members to contribute to this association. 
The management of its aflFairs are under the control of the 
proper officers, represented by the Insurance Secretary, 
the Insurance Association having its own board of officers. 

The salaries of officers until the meeting of the General 
Assembly at Richmond, in October last, were meagre in- 
deed, in comparison with the duties performed, the Gen- 



HISTORICAL SKETCH OF THE KNIGHTS OF LABOR 167 

eral Master Workman receiving but $1,600 a year and his 
necessary travelling expenses. He now receives $5,000 
per annum. The officers have been changed somewhat, 
the present general officers being as follows: General 
Master Workman, T. V. Powderly; General Foreman, 
Richard Griffiths; General Secretary, Charles H. Litch- 
man; General Treasurer, Frederick Turner. 

The literature of the Order has not as yet been exten- 
sive. The Journal of United Labor is the official organ 
of the Order. The first number of this journal was is- 
sued May 15, 1880, under the direction of Mr. Charles 
H. Litchman, then General Secretary, and was published 
monthly. Since 1884, it has been issued semi-monthly at 
Philadelphia. It is an interesting publication, and the 
files have been generously placed at my disposal. With 
the vast constituency of the Knights of Labor behind it, 
it has a support which brings it success. 

The real growth of the Order may be said to date from 
the Detroit session in 1881, when the strict secrecy of the 
Order was abolished, and it was declared that its name 
and objects should henceforth be made public. The Rich- 
mond Convention may be looked upon as marking an 
epoch in the history of the Order, although the results of 
this congress are not yet fully developed. It did much, 
both in an affirmative and in a negative way. The conser- 
vative force of Mr. Powderly was retained by his almost 
unanimous re-election. Mr. Powderly, himself an ardent 
Catholic, shields the Order by his own membership from 
the antagonism of his Church to all secret societies. 

Resolutions looking to the elevation of the Order, as 
well as resolutions defining principles and objects, were 
much discussed at Richmond, but without resulting in 
legislation or any constitutional change. A warm discus- 
sion also took place over the following resolutions, which 
were finally adopted : — 

That this General Assembly appeals for mercy for the seven men 
at Chicago to be executed. 



168 QUARTEBLT JOURNAL OF ECONOMICS 

That, while we ask for mercy for the coodenmed men, we are not 
in sympathy with the acts of the Anarohiata, nor any attempts of 
indiTidoala or associated bodies that teach or practise violent infrao> 
tions of the law, believing that peaceful methods are the surest and 
best means to secure the necessary reform. 

Whether this great Order is to be hereafter a factor for 
good or for evil, depends upon the wisdom, not alone of 
its leaders, but of that vast army of workers constituting 
its rank and file. It stands to-daj as an organization 
representing the opposite of the trades-union, and is bend- 
ing all its energies to preserve the broad principle of the 
harmonious interworking of all interests, as against the 
trades-union idea, which comes closer to human nature, 
of the preservation of individual interests. Which idea 
will survive and become the leading fundamental element 
of the future great labor organizations is the problem. 
Whichever it may be, the prayer of every patriotic citizen 
is that the organization based upon the surviving idea 
shall work for the cause of humanity, for the preservation 
of order and the recognition of the law. Certain it is 
that neither the trades-unions nor the Knights of Labor 
call upon their members for any obligation or pledge 
interfering with their duties as citizens. They know that 
they must stand on the principle that a man must be a 
citizen first, and a good, law-abiding citizen, before he can 
be a faithful member of any organization within society. 

Cabboll D. Wright. 

(Note. — The discussion of the principles and practices of the 
Knights of Labor, the analysis of such principles, and the expression 
of opinions thereon are not withia the scope of this paper, the ob- 
ject being simply to state with accuracy the leading historical events 
connected with the Order. In making this statement, I have had the 
assistance of past officers and worthy members of the Order, and to 
them the paper in its completed form has been submitted, and by 
them pronounced true in all its statements of fact. — c. d. w.) 



THE DISPOSITION OF OUR PUBLIC LANDS. 

Jan. 26, 1786, General George Washington wrote a 
letter in which occurs the following passage: "There 
being no settlement or appropriations [of land] (except the 
reservation in favor of the Virginia line of the aimy), to 
my knowledge, in all the country north-west of the Ohio." 
In 1883, according to an official publication of the Public 
Land Commission, there were "purely arable lands re- 
maining in the West (estimated), five million acres," and 
"the movement westward in search of free government 
lands must soon cease." No more timely and interesting 
service could be performed than to consider the probable 
effect of the impending change. For a century, our polit- 
ical, economic, and social, relations liave been sensibly 
affected by the nearness, accessibility, and cheapness of 
government land. The population of the country has at 
last overtaken our tmsettled domain. Henceforth, our 
conditions must be more like those of old and crowded 
countries. The nation has had, enjoyed, and spent, a part 
of its heritage ; and can never recover it. 

To speculate upon the future is, however, more difficult 
and less profitable than to consider the mistakes of the 
past. The present article is an attempt to show how it 
comes about that the arable lands of the United States 
government are on the verge of exhaustion. Three ques* 
tions will be considered in turn, — the acquisition of the* 
lands, their disposition, and the policy of the government- 

The first table given in the Appendix of this number 
shows how the United States acquired its lands. The 
government of the United States deals with territory in 
three different aspects. As a general government, it ex- 
ercises jurisdiction over all the area included within the 



170 QUABTEBLT JOURNAL OF ECONOMICS 

boundaries of the United States; as a govemment, it 
controls, or provides for the control of, that part of the 
national territory not organized into States; as a land- 
holder, it owns large tracts of lands within both States 
and Territories. In the first column of the table is pre- 
sented a statement of accessions of territory. The Con- 
gress of the United States went into the business of 
governing the nation, March 1, 1781, with 819,815 square 
miles of territory; and this area was acknowledged to 
belong to the United States by the treaty of 1788. The 
first increase of territory came in 1808. The Interior 
Department has committed itself, in its land and census 
publications, to the statement that the Louisiana purchase 
of that year included Oregon. It is more in accordance 
with the historic truth to say that our title to Oregon, 
south of the Columbia, dates from the Lewis and Clark^ 
expedition of 1806. The United States, therefore, se- 
cured 877,268 square miles in 1808, and 226,948 square 
miles in 1806. In 1812, acts of Congress extended our 
jurisdiction over about 9,740 square miles, claimed by 
Spain, in West Florida. The Florida purchase of 1819 
added 64,240 square miles. Texas brought us 262,290 
square miles in 1846. Here, again, the government publi- 
cations conflict with history. New Mexico was never a 
part of Texas, and our title to that region rests upon 
the same basis as that to California : it was a part of the 
conquest of the Mexican War. In 1846, our title to the 
58,880 square miles north of the Columbia was acknowl- 
edged by England. In 1868, we bought 47,880 square 
miles of Mexico. Finally, in 1867, Russia ceded to us 
Alaska, with 8,501,609 square miles. To speak in round 
numbers, the original area of the United States was 
doubled by the Louisiana cession ; almost as much was 
added out of Mexican territory; and Oregon and Alaska 
together make up the fourth quarter of the present area. 
The area embraced in the Territories has varied almost 



THE DISPOSITION OF OUB PUBLIC LANDS 171 

from year to year. Between the years 1784 and 1802, 
cessions by the States had given to the United States 
405,482 square nules ; but, besides two little tracts ceded 
by the United States to Pennsylvania and Georgia, the 
creation of new States, beginning with Tennessee in 1796, 
withdrew large regions from the Territorial status. Each 
annexation increased the Territories for the time being: 
each admission of a State again reduced it. At present, 
the Territories cover 1,466,257 square miles, and the 
States 2,040,252. Smce 1820, the area of the States 
taken together has never been very far from one-half of 
the total area of the whole United States. 

That part of the land within our boundaries which 
belongs to the nation has by the Land Office been named 
the Public Domain. The area is a ratio having two vari- 
ables : at intervals, it is increased by cessions or annexa- 
tions ; every year since 1799, it has been diminished by 
sale or gift. At the beginning of the existence of the 
Confederation, in 1781, the government did not control 
or own a single acre of land. Every part of the United 
States was claimed by some State, and there were regions 
covered by two or even three claims. With all its defects 
and its imbecility, the Confederation did one great service 
to the nation and to posterity: it succeeded in prevail- 
ing upon a number of the States to waive their claims in 
behalf of the general government. March 1, 1784, the 
cession of Virginia gave to the United States undisputed 
title to a large part of the region north of the Ohio River. 
The previous cession of New York and the later cessions 
of Massachusetts and Connecticut, in 1785 and 1786, com- 
pleted the title to the vast tract now occupied by six 
populous States. In the South, the process was slower. 
South Carolina ceded her claim in 1787, North Carolina 
in 1790. It was not till 1802, that Georgia released her 
hold upon the region now taken up by the States of Ala- 
bama and Mississippi. 



172 QUABTEBLT JOURNAL OF ECONOMICS 

An inspection of Table I. will show that the United 
States received title to less land than was included in the 
cessions. In every case there were reservations. Thus, 
Connecticut kept for herself the Western Reserve. Vir- 
ginia liberally provided a bounty tract for her Revolu- 
tionary soldiers north of the Ohio River. North Carolina, 
with a great flourish of trumpets, yielded the region now 
included within the State of Tennessee ; but it was found 
later that the whole region was covered by State land 
warrants, so that the United States never held an acre. 
In addition to the reservations for the benefit of States^ 
and their protSgSi^ every tract which has come to the 
government has been reduced by the claims of previous^ 
residents. The policy of the government has been, to 
leave undisturbed actual occupants of small estates, and 
to construe liberally the grants of previous governments. 
The Indian occupancy has always been recognized as^ 
something which must be purchased before the United 
States gained full title. Texas retained the whole body 
of public lands within her limits. With these two excep- 
tions, the United States has, since 1802, had to consider 
only private claims. As more than one-half of the whole 
territory (1,865,457 out of 3,501,509 square miles) has^ 
once been Spanish, the land titles under the grants and 
laws of Spain have been a troublesome thorn in the flesh 
of successive Land Commissioners. No exact record 
appears of the precise quantities of land confirmed to 
claimants in California, New Mexico, Louisiana, and 
Florida, but upwards of fifty thousand square miles have 
doubtless never entered the public domain. The general 
policy of the government is to require a claimant to 
prove his title. Great hardship has often ensued, and 
many grants are still unconfirmed by the United States. 

If the government had never parted with any of the 
lands to which it had undoubted title, we should now have 
a patrimony of 2,708,888 square miles. This area is but 



THE DISPOSITION OF OUB PUBLIC LANDS 178 

little less than that of the whole United States, excluding 
Alaska. The fourth column of Table I. shows the 
iimount of land in possession of the United States from 
year to year. It will be noticed that since 1803 we have 
had more land than exclusive territory. A very consid- 
erable part of the public domain lies therefore within the 
limits of States. Another significant fact, shown by the 
isame table, is the rapid melting away of the area gained 
by each cession since 1806. We had less land in 1846 
than before the Florida and final Oregon annexations; 
the area of Alaska barely made good the acreage lost 
since 1848, and a new Texas would not much more than 
restore the public lands parted with since 1867. Let us 
look more closely into the process by which the United 
States has divested itself of more than a million square 
miles. 

Table II., in the Appendix, shows the number of acres 
disposed of in each year, classified under four heads, 
which, roughly speaking, account each for one-fourth of 
the total. First in amoimt and importance are the sales. 
The history of the public lands happens to fall into five 
tolerably distinct periods, each of about twenty years. 
From 1784 to 1801, the policy of the government was, to 
sell lands in large quantities by special contract: the 
result was an average sale of less than one hundred thou- 
sand acres yearly. In 1800 was inaugurated a new sys- 
tem of sales, in small lots, on credit: about eighteen 
millions of acres were thus taken, but more than two 
And a half millions subsequently reverted to the govern- 
ment under relief acts. In the middle of 1820 began 
a system of sales for cash, in lots to suit purchasers. 
Seventy-six million acres were sold in twenty years ; but 
the half of this quantity went in the two years preced- 
ing the panic of 1887. After that revulsion, the pre- 
emption system was adopted, by which the most desirable 
lands were reserved for actual settlers, at a low price. 



174 QUABTERLT JOURNAL OF ECONOMICS 

Except in the years 1866-57, the sales were steady, and 
kept pace with the growth of the West. The homestead 
system carried the principle of land for the landless still 
further, and cut down cash sales to an average of a 
million acres a year. Since 1880, pre-emptions have been 
resorted to again, in many cases for fraudulent purposes. 
At present, lands are classified by the Land Office as agri- 
cultural, saline, town site, mineral, coal, stone and timber, 
and desert lands. From 1854 to 1862 there was a further 
class of " graduated lands." These were tracts which had 
long remained iinsold, and were offered to abutters at 
very low prices. The minimum price for ordinary lands 
has for many years been $1.25 per acre. Timber lands 
and lands reserved from railroad land-grants are sold at 
the " double minimum " of f 2.50 an acre ; mineral lands 
are valued at $2.50 and $5 an acre ; coal lands, at $10 
and $20 an acre. 

It would seem, therefore, as though the sale of a hun- 
dred and ninety-two million acres must have brought in a 
handsome sum to the government. As long ago as 1787, 
Thomas Jefferson wrote : " I am very much pleased that 
our western lands sell so successfully. I turn to this 
precious resource as that which will, in every event, lib- 
erate us from our domestic debt, and perhaps, too, from 
our foreign one." It is true that the proceeds of the 
public lands did eventually wipe out the last vestiges of 
the debt which had existed in 1787. It is true that the 
lands had, up to June 30, 1883, brought into the Treasury 
of the United States the smart amount of two hundred 
and thirty-three million dollars. It is also true that, 
except for the period from 1830 to 1840, the lands have 
been a drain upon, and not a resource of, our finances. 
At the end of the financial year 1882-83, the government 
was out of pocket, so far as cash outlay and receipts 
are measures of the value of the lands, in the sum of 
$126,428,484.89. The first great item of expense is the 



THE DISPOSITION OF OUB PUBLIC LANDS 175 

extmguishment of the Indian title to ownership. Since 
1781, the United States government has recognized the 
right of occupancy, but has asserted its sole preroga- 
tive to acquire Indian lands. First and last, up to the *^'^ 
end of the fiscal year 1882-88, it had paid two hundred 
and nine millions of dollars for the interest of the Indian > 
in his lands. There have been grave acts of injustice in ^ ^ , 
the manner of negotiation and of payment, but no in- o^' 
ferior race ever received more consideration at the hands ^^ 
of the treaty-making power. The Indians are still in 
possession of reservations comprising some of the most 
favored lands in the West and embracing more than a 
hundred and fifty million acres of land. A second source 
of expense has been the purchase-money paid for all the 
annexations since 1802, except that of Oregon. The 
items taken together make an outlay of upwards of 
eighty-eight millions. Surveys and expenses of disposi- - - • 
tion add fifty-five millions. If a strict account were to 
be made up, there should be added a proportion of the 
general expenses of maintaining the government, and the 
whole cost of the Mexican War. 

Unsatisfactory as is the financial result of our public 
land policy, we must reflect that the sales account for but 
little more than a fourth part of the total disposition. ' 
Perhaps we shall find the remainder so used as to give 
some indirect benefit which cannot be reckoned in dollars 
and cents. In the second column of Table II. is a partial 
record of the grants made to individuals. The twenty- 
year periods are again distinctly marked. In the first 
four decades, two sorts of grants are apparent. In 1796, ' 
and later, provision was made for the fulfilment of long- 
standing promises to the Revolutionary troops and to the 
Canadian refugees who had taken sides with the patriots. 
At the same time. Congress made gifts of small tracts of 
land to individuals who had performed special services to 
the republic. Thus, Lafayette received a township of 



176 qUABTERLT JOURNAL OF ECONOMICS 

land in 1824 ; and in 1843 a square mile was voted to one 
Lowe for "his gallantry and peril in the rescue of an Amer- 
ican brig from the hands of pirates." A very few grants 
were made to educational and charitable institutions. 
Thus, Jefferson College, Mississippi, and the deaf and 
dumb asylums of Kentucky and Connecticut, were each 
endowed with a township. Congress has always shown a 
singular moderation in making special grants, perhaps 
because its general gifts were so magnificent. Of the ten 
million acres given away, down to 1840, the greater part 
was in reward for services in the Revolutionary War and 
War of 1812. For services in the Mexican War, the 
government appropriated about sixty millions of acres. 
Another form of gift is the so-called " donations." From 
1842 to 1854, acts were passed granting quarter sections 
of land to actual settlers who would reside on dangerous 
frontiers. About three millions of acres have been 
claimed under these conditions. The homestead acts of 
1862 introduced a new principle into the public land 
system : it provided not only for the reservation of land 
for actual settlers, but it proposed to give the land to all 
heads of families, citizens of the United States or intend- 
ing to become such. The effect of the act has been 
threefold. Under its provisions and those of the similar 
timber-culture act of 1873, immigration has been stimu- 
lated, the revenue from the lands has been comparatively 
little, and ninety millions of acres have passed from the 
public domain into private hands. In some respects, the 
rapid settlement of the West, which has been greatly 
favored by the generous policy of the government, has 
undoubtedly conduced to the welfare of the country, and 
has made possible our elaborate systems of transportation 
and distribution on a large scale. It is, nevertheless, a 
question whether the present generation, as well as pos- 
terity, might not have been equally prosperous if the 
government had made the conditions of acquirement 
more rigorous. 



THE DISPOSITION OF OUB PUBLIC LANDS 177 

To ascribe the depletion of our reserves of land to the 
bounty and homestead acts is unjust : the United States 
has given to the States almost as much as to individuals. 
Most of the original sixteen States (including Vermont, 
Kentucky, and Tennessee) were in possession of unoccu- 
pied lands in 1802. The new States, as they have been ad- 
mitted, have received large gifts of three kinds. To most 
of them have been granted from one to six townships of 
saline lands, — an aggregate of half a million acres. For 
all admitted to the Union previous to 1860, have been 
reserved one thirty-sixth of the public domain within 
their limits, for school purposes. The fortunate States 
which have come in since 1860 receive an eighteenth; 
and a like amount is reserved in each of the Territories, 
except the Indian Territory and Alaska. The total thus 
set aside is about sixty-eight million acres. For each of 
the new States and Territories has also been reserved a 
tract of from two to four townships for a university, — 
a total of more than a million. In 1862, Congress granted 
to each State in the Union lands proportioned to its repre- 
sentation in Congress, for an agricultural college. Nearly 
ten million acres were thus appropriated. It is at least 
doubtful whether a system of endowed public schools is 
desirable. Many of the States have squandered, lost, or 
misused the lands acquired for educational purposes. In 
others, the people decline to tax themselves for school 
purposes, and rely wholly on the fund. But it is even 
worse with other forms of grants to States. In 1841, a 
time of reckless disposition of the lands, a grant of five 
hundxed thousand acres was made to seventeen of the 
States, for internal improvements. The largest single 
gift laiade to the States at one time was included in the 
swamp-land grants of 1849 and subsequent years. All 
the " swamp and overflowed lands " within the limits of 
any State were granted to that State. It was expected 
that the sale of a part would pay the expense of reclaim- 



178 QUARTERLY JOURNAL OF ECONOMICS 

ing the whole. It does not appear that any great im- 
provements have been made by the States; and the 
United States is now spending large sums in building 
levees, to protect regions presented to the States in 1860. 

Throughout the history of the country there has pre- 
vailed the double error that a gift of land cost the govern- 
ment nothing and was of very great value to the recipient. 
Upon the land that is of any worth, the United States 
has spent money for surveys and administration ; and the 
States and other grantees have found it hard to turn the 
gifts into money. A great part of the educational grants 
have realized not more than a dollar an acre. It would 
in many respects be preferable for the government to 
appropriate the proceeds of the lands rather than to give 
the disposal of the soil to the States. A distribution act 
was passed in 1841, by which the net amount received 
for public lands was to be paid to the States ; but it was 
repealed so speedily that only about seven hundred thou- 
sand dollars were thus distributed. A much larger sum 
has accumulated, and has been paid to the States under 
the "two, three, and five per cent, funds." By agreement 
with each State as it has entered the Union, the United 
States consents to pay over a proportion of the net pro- 
ceeds of the lands within that State. More than seven 
million dollars have been allowed under this provision. 
The deduction is not strictly a gift, since the States in 
return bind themselves not to tax public land till it has 
been five years in the hands of a private owner. 

In theory, the lands appropriated for internal improve- 
ments of various kinds have also been sacrificed, in order 
to make the remainder more valuable. The Ohio five per 
cent, fund in 1802 was intended to be applied to the con- 
struction of the Cumberland road, which was to be the 
great avenue for purchasers and settlers from the Atlantic 
coast. This was the beginning of the system of internal 
improvement at the expense of the nation ; but, in prac- 



THE DISPOSITION OF OUR PUBLIC LANDS 179 

tice, Congress built the road out of general funds. It 
was not till 1827, four years after the first river and har- 
bor bill, that direct grants of lands were made in aid of 
internal improvements. The new and momentous policy 
began with grants for canals. Between 1827 and 1850, 
about three million acres had been appropriated to this 
purpose, principally to secure the completion of the sys- 
tem connecting the lakes with the Ohio and Mississippi. 
The jealousy caused by the action of Congress brought 
about the comprehensive grant of five hundred thousand 
acres to each "public land State," to which we have 
already referred. But the most familiar forms of grants 
for internal improvements date from 1860. By that year, 
the railroad system had been extended so far west as to 
penetrate large tracts of unsold lands. Congress aided 
the extension of the system by assigning to the States 
of Illinois, Alabama, and Mississippi nearly four million 
acres, to be used toward the construction of the Illinois 
Central and Mobile and Ohio lines, reaching from Chi- 
cago to the Gulf. Between 1850 and 1872, about 
eighty similar land-grants were made. The principal 
lines of communication in Minnesota and Iowa, and im- 
portant roads in Wisconsin, Illinois, Missouri, Arkansas, 
Louisiana, Alabama, Mississippi, and Florida, were sub- 
sidized. In 1862, a new problem presented itself. It be- 
came a political necessity to lay a line of railroad across 
the continent. Between Iowa and California there were 
no States to which the grant could pass. Congress, there- 
fore, promised a subsidy to corporations which undertook 
to build the road. 

In the ten years following, some twenty-three similar 
grants were made, in almost all cases for roads running 
east and west, and intended to form links in transcon- 
tinental lines.* To satisfy the terms of the acts, about 
one hundred and fifty-five millions of acres would be 

* In Donaldson's Public DomtUrit 949, will be found two excellent giaphio 
maps of the land-gnuts. 



180 QUABTEBLT JOURNAL OF ECONOMICS 

necessary. Several companies never built their roads, 
and earned no grant: others completed the work after 
the prescribed time. In a few cases, Congress has for- 
mally declared the grant void, and has restored the land 
to the public domain. In 1883, nearly the whole area 
was at least withdrawn from settlement, pending a legal 
return to the full control of the government; but only 
forty-seven millions of acres had been formally patented 
to the States and companies. A few grants for canals 
and for wagon roads, between the years 1868 and 1872, 
make up the three remaining millions of the grand total 
promised by the government, — a total of a hundred and 
sixty-one millions of acres. 

To express the disposition of the public lands in famil- 
iar terms, the United States has parted with a tract 
equal to its whole area east of the Mississippi River, added 
to the States of Missouri, Iowa, and Minnesota (west of 
the river). The acreage sold is a little more than the 
combined areas of the New England and Middle States, 
with Ohio, Indiana, and Michigan. The coast States 
from Delaware to Florida (including Maryland) repre- 
sent the area of gifts to individuals. The remainder of 
the South, east of the Mississippi, closely approximates to 
the area of grants to States. The remainder of the North- 
west, with Missouri, Iowa, and Minnesota, may stand for 
the internal improvement grants. 

Yet so vast is the area of the country that the govern- 
ment might repeat its sales and gratuities, acre for acre, 
without exhausting its reserves of land in the West alone. 
In spite of the fact that the States had in the beginning, 
or have retained, five hundred million acres, and that the 
United States has parted with six hundred and eighty 
million acres, the public domain still comprises upwards 
of a thousand million acres. The real significance of the 
present alarm about the disappearance of the public lands, 
lies in the fact that the greater part of the unsold lands 



THE DISPOSITION OF OUB PUBLIC LANDS 181 

are either reserved for the Indians or are unfit for ordi- 
nary tiUage. Upon the best vacant lands, — amounting 
to about a hundred and fifty millions of acres, — the In- 
dians are now seated. The area can be reduced by judi- 
cious and costly treaties ; but it amoiints only to about 
five hundred acres per head, and, if the occupants should 
take up land in severalty, they could not be dispossessed 
without such injustice as would rouse the nation. Ex- 
perts in the Land OfiSce assure us that, making all deduc- 
tions and allowances, the remaining lands are worth up- 
wards of a thousand millions of dollars. There is no 
evidence in the past policy of the government for believ- 
ing that we shall actually net one-tenth of that amount. 
The greater part of the region is officially classified as 
" Desert Lands," and is for sale in tracts of six hundred 
and forty acres, at a dollar and a quarter an acre. Noth- 
ing but the temporary increase of pre-emption enables the 
Land Office at present to pay its running expenses out of 
income. The golden time is past ; our agricultural land 
is gon^ ; our timber lands are fast going ; our coal and 
mineral lands will be snapped up as fast as they prove 
valuable. There is no great national reserve left in the 
public lands, unless there should be a change of policy. 
Should disaster overtake us, we must depend, like other 
nations, on the wealth of the people, and not on that of 
the government. 

It is, of course, true that the lands are still in existence, 
and have been made many times more valuable by the 
labor of the occupants. It is further true that large 
quantities of land are for sale by the railroads and other 
grantees. There is no immediate danger of a land fam- 
ine. There is abundant cause for criticism of the system 
adopted by the United States, but it should rightfully be 
directed rather against the manner in which the laws 
have worked than against their purpose. Since 1841, the 
lands have nominally been reserved for actual settlers; 



182 QUABTEBLY JOURNAL OF ECONOMICS 

but practice has shown grave defects in the settlement 
laws, — defects which Congress has no will to remedy. 
No man can legally pre-empt land or take up a homestead, 
more than once. The privilege is very diflScult to guard, 
and perjury and fraud are alarmingly frequent. No man 
can legally acquire more than eleven hundred and twenty 
acres of land, in the West, from the government; a hun- 
dred and sixty acres each as a pre-emption, as a home- 
stead, and as a tree claim, and a section as a desert land 
claim. Actually, single individuals and companies own 
large estates, which a few years ago were in the hands 
of the government. 

The accumulation of the large tracts is often brought 
about by fraud, but much oftener through the mistaken 
generosity of the government or through defective land- 
laws. It is not always necessary to hire men fraudulently 
to take up land for the company. In Texas, the State 
has sold its lands in its own way, often in large blocks. 
The school-lands and the scrip for bounty warrants have 
legally been used for locating wide extending estates. 
The railroad lands, although not in compact tracts, can 
be used as a nucleus for a large accumulation : and, in a 
country where land is cheap and money dear, the patient, 
long-headed capitalist can buy up valuable claims in a 
legitimate manner. The chief source of the present 
trouble in the West lies in the fact that the government 
never recognized that grazing land must be sold and occu- 
pied under different conditions from ordinary arable lands. 
The first comers have been allowed to take up the water- 
fronts. Any comprehensive system of irrigation of large 
areas for the benefit of future land-seekers has thus been 
forever prevented. The possessor of the rivers and water- 
holes has gained control of the country behind his claim. 
In such a contest, the largest and richest concerns have 
a great advantage. There was a time when the govern- 
ment might have laid out, for sale or lease, large tracts of 



THB DISPOSITION OF OUR PUBLIC LANDS 188 

grazing lands, each with a sufficient water-front. It is 
now too late. 

The fundamental criticism upon our public land policy is, 
not that we have sold our lands cheap, not that we have 
freely given them away, but that the gifts have in too many 
cases inured to the benefit of those whom the government 
meant to ignore. The " land-grabber " is, in most cases, 
simply taking advantage of the chances which a defective 
system has cast in the way of shrewd and fore-handed or 
unscrupidous men. The difficulty is certainly not in the 
Land Office, which, in the midst of perplexing complica- 
tions, has striven hard to protect our lands. The faidt 
lies at the door of the Congress of the United States, 
which has the power, but not the will, to correct notorious 
defects in our system. Still further back, the fault is 
with the free citizens of the Republic, who have been too 
busy to insist that there shoidd be a comprehensive land 
policy, providing for the equitable disposition of all classes 
of the public lands. 

Albert Bushnell Hart. 



THE SOUTH-WESTERN STRIKE OF 1886.* 

The year 1886 is likely to be noted as a great strike 
year; and, of the many strikes which took place in its 
course, that on the Missouri Pacific Railroad system had 
the widest effects and the greatest significance. It was 
an extreme case, — extreme in its magnitude, extreme in 
the methods and the temper of the strikers. For that 
reason, it brings out clearly certain characteristics which, 
though they are not so prominent in other cases, are yet 
common to almost all the strikes of the year. The en- 
deavor of the present paper is to put on record an account 
of this typical movement which shall be full and impar- 
tial, and shall stand for future reference as an authentic 
source of information. 

The strike began on the Missouri Pacific system f on 
the 6th of March, 1886. At ten o'clock of the morning 

*Th6 sovToes of informaiioii for this paper haTO been largely the news- 
papers, and especially the St. Louis Crlobe-Democrat, whose reports of the strike 
were very fnll. The testimony taken before the Congressional Committee is of 
great interest and value. It has not yet been published ; but I have had aooess 
to stenographic reports of the evidence, of which the most important parts were 
also printed in the newspapers at the time. The Missouri Pacific Company 
printed several pamphlets, containing the letters and statements put forth at 
one time or another by the strikers and by the road. These pamphlets contain 
also reports (by stenographers) of the interviews between the General Board of 
the Knights of Labor and the Missouri Pacific officers. Conversation and 
correspondence with those who were engaged in the strike have yielded me 
much information. The Knights of Labor version of the causes of the strike 
is to be found in the report presented by Mr. Charles H. Litchman, their 
present General Secretary, to the order at its convention at Richmond, in 
October, 1886. The report conssts mainly of a reprint of the testimony ^ven 
before the Congressional Committee by Mr. £. B. Hollis, a Knight of Parsons, 
Kansas ; and to that testimony I shall have frequent occasion to refer. 

t The important parts of the Missouri Pacific system are : — 

1. The Missouri Pacific proper, — main line from St. Louis to Omaha. 

2. The St. Louis, Iron Mountain, and Southern, — main line from St* 

Louis, through Arkansas, to Texarkana. 



THE SOUTH-WESTERN STRIKE 186 

of that day, the freight operations of the roads were sud- 
denly brought to a stand-still. At almost all the more im- 
portant towns, — at St. Louis, Kansas City, Sedalia, De 
Soto, in Missouri ; at Atchison and Parsons, in Kansas ; 
at Little Rock, in Arkansas; at Dallas, Denison, Palestine, 
in Texas, — a whistle was blown ; and the shop-mechanics, 
yardmen, and switchmen simultaneously quit work, and 
filed out of the shops and yards. The organization of the 
strikers was perfect. At every important point, the roads 
were bared in an instant of men indispensable for the 
movement of trains. 

No warning had been given to the managers of the 
roads, nor at that particular time were any complaints 
or demands under discussion. The blow was struck sud- 
denly, and, on the surface, without cause or provocation. 
Tet it was not unexpected by the roads. Even the gen- 
eral public had been for some days uneasily awaiting a 
disturbance; and, in the minds of the aggressive work- 
men, the strike was the culmination of a struggle begun 
many months before. 

We must go back a year or two, in order to find the 
origin of the dispute. The general depression of 1884 
and 1885 had affected the South-western roads, as it had 
all others. In September, 1884, there had been a general 
reduction of wages. In March, 1885, a year before the 
great strike, another reduction was announced. At this 
reduction, a strike broke out among the shop-mechanics, 
primarily for the retention of the old wages. As in 1886» 
it extended over the whole Missouri Pacific system. In 
Texas, Arkansas, Kansas, Missouri, the strikers quit 
work, not quite simultaneously as in the next year, but 

3. The MisKrari, Kmmmmi, and Texas (leased), — main line from Han- 

nibal, throogh Missouri, the Indian Tenitoiy, and Texas, to 
Taylor. 

4. The International and Great Northern (leased), — permeating Sooth- 

em and Eastern Texas. 

5. The Central Branch of the Union Pacific (leased),— from St. Joseph, 

Afissonri, westward into Kansas. 



186 QUARTERLY JOURNAL OF ECONOMICS 

within a few days of each other. Thej not only quit 
work: they also prevented the roads by force from contin- 
uing traffic. Passenger trains were not interfered with, 
but freight traffic was summarily stopped. Engines were 
disabled, locked up, or taken in charge ; and the handling 
of freight was prevented by threats or by force. The 
public was disposed to sympathize with the strikers, not- 
withstanding their masterful methods. There was the 
natural feeling of repugnance to a lowering of wages; 
and there was prejudice against a railroad system which 
was believed to be under the control of Mr. Jay Groidd. 
The governors of the States of Missouri and Kansas, 
feeling that they were backed by public opinion, took it 
on themselves to suggest an adjustment of the trouble. 
Of their own motion, they approached the railroad man- 
agers, and formally ^^recommended and requested" that 
wages should be restored to the rates which had been paid 
in September, 1884, and that all workmen who had struck 
should be taken back without prejudice for the part taken 
in the strike. These recommendations were signed by 
them as governors, and were signed, also, by the railroad 
commissioners of both States, and by the labor commis- 
sioner of Missouri. The railroads could not do otherwise 
than submit. Their traffic was annihilated ; public opin- 
ion and the State government were against them. They 
accepted the terms proposed. 

The victory of the strikers in 1886 was, beyond doubt, 
a main cause of their summary action in the following 
year. Their victory had been complete. They had taken 
possession of the road, controlled it for a week, violated 
the law, and had got what they wanted. Not a man was 
the worse off for having struck. Not a man was even 
blamed for having prevented by force the movement of 
trains. They could not but regard the result as proof at 
once of the soundness of their methods, and of the almost 
irresistible power of their organization. 



THE aOUTH'WESTERN STRIKE 187 

The Knights of Labor did not appear publicly during 
the strike of 1885; but it is probable that most of the 
shop-mechanics, who were the active movers in the strike, 
were Knights, and that the tactics of the strikers came 
from that organization. In the course of the year, it had 
an extraordinary growth, and began to be seen on the 
surface of affairs. In April and May of 1885, we hear for 
the first time of lodges of the Knights in Sedalia. In 
September, District Assembly No. 101 was formed, com- 
prising all Knights of the Missouri Pacific system. At 
first, it was composed of but five Local Assemblies ; but, 
before the strike of 1886, the Local Assemblies were 
thirty, and the members were numbered by thousands. 
The growth took place largely by the absorbing of the 
existing lodges and unions of the railroad workmen.* 
The appearance of the Knights consolidated the organi- 
zation of the workmen, and rendered them more confident 
of their strength. For the moment, however, it made 
no essential change in the situation. 

The year from March, 1885, to March, 1886, was an 
uneasy one for the railroads and for their employees. 
There was continual rubbing. The Knights of Labor 
took a commanding tone, and began to assume authority 
in the details of the management of the roads. The time 
was one of depression and of scant business, and a re- 
duction of the working force was called for. The most 
economical way of reducing the force would have been to 
discharge some of the men, keeping the remainder at work 
on full time. But the men demanded that the reduction 

* The switchmen, while they joined the Knights, maintained also a separate 
organization of their own, and in Fehmary, 1886, formed a national association 
(*'The Switohmen^s Mutual Aid Association''). But, so far as the Sonth- 
westem strike is concerned, the switchmen may he treated henceforth as merely 
members of the Knights of Labor. Their general association seems not to have 
inflnenoed the strike. Some testimony before the Congressional Committee 
indicated that, at the time of the strike of 1885, most shop-mechanics were 
members of " mixed " assemblies of the Knights. District Assembly 101 is a 
trade assembly, composed exdnsiyely of railroad workmen. 



188 QUARTERLY JOURNAL OF ECONOMICa 

should be made by lessening the hours of work for all, 
without reducing the number employed. The road sub- 
mitted, and shortened hours without reducing numbers. 
A more serious interference occurred when the men took 
it on themselves to say where and how repairs should be 
made. Some cars and engines at Palestine, Texas, needed 
repair. The managers wished to take them to another 
place for repair; but the men insisted that the work 
should be done at that place, and struck against the 
grievance of its being done elsewhere. The road again 
submitted. At various points, as at the large shops at 
De Soto, mechanics and foremen were discharged by the 
road, not because they failed to do their work satisfac- 
torily, but because it was necessary to discharge them in 
order to stave off a strike by the Knights. Discipline 
became lax and work expensive, especially in the shops. 
The Knights frequently demanded that no member of 
their order should be discharged without previous written 
accusation and opportunity for defence. But, though 
they often managed to bring about the employment or 
discharge of particular men, they could not secure a 
formal admission of this general principle. It played na 
small part in their grievances after the strike broke out.* 

* The 8apermteiideiit of the system testified before the Congressioiial Com- 
mittee that ** sinoe the strike of 1886 there has been a redaction of discipline in 
onr shops, and work has not been so weU done." A foreman from De Soto said 
that, ** for eight months before [the strike of 1886], the men were not doing 
justice to the company." The master-mechanic at St. Loois testified similarly 
that *^ after the strike of 1885 I saw a growing insubordination," and that ** the 
men, during the latter part of 1885 and the early part of 1886, were not doing- 
what was fair in many instances." The testimony of Sibley, the general su- 
perintendent of the Missouri Pacific proper, contains many details as to the 
efforts which the Knights made, often with success, to secure the dischaige of 
men obnoxious to them and the employment of members of their order. 

The foUowing communications relate to the Parsons foundry dispute,, 
which HoUis, as quoted in Litchman^s report, referred to as one of the griev- 
ances of the strikers. The superintendent of the Missouri Pacific, Sibley, 
received on Oct. 4, 1885, the foUowing laconic telegram from Parsons, 
Kansas: — 

**£. K. Sibley: Ton are wanted here immediately to avoid trouble at 
shops. (Signed) J. B. Brennan, A. Boyd, Committee^ 



THE 80UTH-WE8TEBN 8TBIKE 189 

In August of 1885, a strike broke out on the Wabash 
road. The Wabash, which, like the Missouri Pacific, is 
called a "Gould road," had a management entirely dis- 
tinct from that of the Missouri Pacific. Indeed, it was in 
the hands of receivers, and was managed, in contemplation 
of law, by the United States court. The Knights of 
Labor, in their struggle with the Wabash, declared a 
boycott on its cars. The Missouri Pacific interchanged 
traffic with the Wabash on a large scale, and the boycott 
seriously involved its business. Nevertheless, it sub- 
mitted, and during the three or four weeks of the Wabash 
strike refrained from handling Wabash cars.* During 

Sibley's answer, which I qnote in fnU, was : — 

**0n aoooont of prerioiu important engagement, it is hardly possible for 
me to oome to Paisons immediatelj. I should be greatly obligea if yon will 
put an^r grioTance yon may hare m writing, and present it to your master- 
meohanic. I will take the matter np and oome to Panons, prorided it cannot 
be arranged withont my doing so. I assure you that it is onr intention to deal 
justly and itarly with aU men, in yiew of which I trust you will present the 
matter as suggested in this telegram.'* 

The f oUowing message came in reply the same day : — 

"Your telegram of October 9 is reoeiTed, and wiU say that we hare sub- 
mitted our ^evance to Mr. Smith, the master-mechanic, and got no satisfac- 
tion from lum. Our grievance is this : the foundry, at this point, has been 
running but three or four dajs per week for the last six -or sctcu months, on 
account of lack of orders. Now, the orders hare come in so fast and are so 
far ahead of the foundry department that, without any more coming in^ the 
foundry cannot fiU orders on hand before the Ist of Januaiy, 1886, by working 
six days per week and ten hours per day. We also respectfully inform you 
that the amount of help has been roduced in the foundry by men quittii^, and 
eo forth ["They do not claim there were any discharged," remarks Su>ley]t 
and that none haye been hired in their places, thereby causing one man to do 
two men's work ; and we will state right here that we find it mipossible to do 
anything with mx. Smith, and wiU say in conclusion that, if you want things 
to run smoothly at this point, you will grant these demands in person or tek- 
gram immediately. The demands, to be brief, are, as we demand, as fol- 
lows : that the foundry be ordered to work hereafter six days a week of t^m 
hours a day, and that the help in the foundry be restored to its original num- 
ber.— J. B. Brennan, A. Boyd, W. B. Laughlln, Committee.'' 

This correspondence is giyen in Sibley's testimony before the Congres- 
sional Committee. Sibley says that he went to Parsons and informed the men 
that, if they worked on fuU time tiU January, there would be nothing for 
them to do thereafter. He offered to giye them work fiye days in the week, 
nine hours each day. After refraining from work for a week, the men ao • 
cepted these terms. It will be remembered that they had insisted, in the 
spring of 1885, that, if work became slack, there should be no reduction in the 
force, but a reduction in working hours. 

See also the passage quoted in the foot-note to p. 209. 

* During the Wabash strike, the Knights required the Blissouri Pacific to 
refrain from housing Wabash engines at its round-house in St. Louis. The 



190 QUARTEBLT JOURNAL OF ECONOMICS 

the much-talked-of struggle between the Knights of Labor 
and the Mallory Steamship Line at Gralveston, a strike 
on a part of the Missouri Pacific system was declared 
by the Knights, to enforce the boycott against the Mallory 
Line ; and the road again submitted. But the commands 
of the Knights were becoming unbearable for the mana- 
gers of the roads. As early as the autumn of 1886, they 
became convinced that sooner or later they must fight the 
Knights. These, on the other hand, became more aggressive 
and self-confident. A decisive struggle was impending. 

A break in the situation occurred in December, 1885, 
when the Texas and Pacific road was put in the hands 
of receivers. This road runs from New Orleans through 
Louisiana and Texas to El Paso. It had been operated 
by the Missouri Pacific as part of the Missouri Pacific 
system. The result of the foreclosure against it, and of 
the appointment of the receivers, was not only that its 
management became independent, but also that old con- 
tracts and agreements were no longer legally binding 
on it. The Missouri Pacific agreement of 1886, if it 
had been at any time a valid contract, at all events did 
not now fetter the Texas and Pacific. Shortly after the 
appointment of the receivers, a committee of the Knights 
of Labor appeared before one of them, — Mr. Brown, — and 
asked him to ratify that agreement. No decided answer 
was given, and in February, 1886, they again appeared, 
and presented to Mr. Brown a new agreement.* Mr. 

BliaBonri Pacific had contracted to perform this service for the Wabash, that 
road having no house of its own ; but it snbmitted, and turned the Wabash 
engines away. A part of the roond-house force then became superfluous, and 
the Missouri Pacific wished to discharge half a dozen men. The Knights 
objected. At first, they demanded that the hours of work should be reduced, 
the force remaining the same. When it was pointed out that this was inqirac- 
ticable, they selected six men whom they considered incompetent, and whom 
they wished to have discharged. The master-mechanic said these six were his 
best men. This is the story of one of the Knights' committee-men, a carpenter 
named Palmer, who testified before the Congressional Committee. 

* This proposed agreement stipulated that no reduction should be made in 
the wages of any employee, unless it were ** decided " by an arbitration com- 



THE SOUTH-WESTERN STRIKE 191 

Brown answered that he was an officer of the court, and 
managed the road under the orders of the court. He 
promised to do full justice to employees, but reminded 
them that old contracts were no longer binding on the 
road, and that rigid economy was necessary in its man- 
agement. 

No further steps were taken by either party. But the 
Knights understood that the Texas and Pacific had made 
a declaration of independence. Indeed, they believed 
that the road had been put into receivers' hands for the 
express purpose of freeing it from the agreement of 1885, 
and giving it the support of the federal courts.* They 
regarded the Texas and Pacific as still a part of the South- 
western system, and they prepared to fight the whole 
system. The executive committee of District Assembly 
No. 101 sent out a circular to the Local Assemblies, ask- 
ing if they would support the executive committee in in- 
sisting on the recognition of the Knights. "We were 
prepared to decide on a strike at any minute." f 

Both parties were looking forwuxl to a struggle ; the 
leaders of the Knights seem to have been even eager for 
it; and an occasion soon arose. On the 19th of Febru- 
ary, two weeks after the correspondence between Receiver 
Brown and the Knights, a man named Hall, a foreman in 
the Texas and Pacific shops at Marshall, Texas, was dis- 

mittoe of six, of whom half were to be appointed by the railroad company (the 
zeoeiTenhip was ignored), and half by the Knights ; that all rolling-stock of 
the coii4>any, and all foreign rolling-stock iignred on its road, should be re- 
paired in the company's shops ; that all promotions, ** such as foremen," should 
be from the ranks ; and that all disputes should be referred to another mixed 
eommittee of six, whose decision was to be final. See the correspondenoe as 
printed in fnU in the St. Louis Olobe-Democrat of March 9, 1886. 

* See the statement of the Knights of Labor, signed by Martin Irons, in the 
St. Louis Rejmbiican of Bfarch 11, 1886. The same belief was declared by ser- 
eral Knights in their testimony before the Gongressiooal Committee. 

t See Irons's testimony before the C ongr e ssi onal Committee. The dreular 
also asked for support in insisting on $1.00 a day as minimum pay for un- 
skilled labor. I haTC not seen any formal demand on the railroad officers for 
that rate of pay, though in Hollis's testimony it is said that such a request 



192 QUARTERLY JOURNAL OF ECONOMICS 

charged. Hall was a prominent Knight. He had been 
one of the committee which presented the demands of the 
Knights to Brown. There had been a convention of Dis- 
trict Assembly No. 101 at Marshall, and he had attended 
its meetings. The railroad officers said that he had ex- 
ceeded the leave of absence granted him for attending the 
convention. Hall and the Knights strenuously denied it. 
The railroad officers said that Hall was a lax and inefficient 
foreman. This also was denied. A workman who had 
the backing of the Knights of Labor, in the temper prevail- 
ing in that organization, was not likely to be over-careful 
in looking after the interests of his employer or in obeying 
his orders. On the other hand, the railroad officers were 
restive under the bonds which the Knights were tightening 
on them. They were released in law from the old agree- 
ment, and they were not unwilling to have a pretext for 
getting rid of objectionable men.* It is not very material 
what is the truth in this particular matter. If the struggle 
had not come at that point, it would have come at another. 
The real struggle — an inevitable one — was not on the 
merits of any single case ; it was not even on the merits 
of the various subjects of dispute during the preceding 
year: it was a struggle for power. The control which the 
Knights of Labor were trying to exercise over the general 
management of the roads was at issue. 

Hall was discharged on February 19. On the 24th, a 
member of the executive board of the Knights of Labor 
telegraphed to the general agent of the receivers to come 

was presented to Mr. Hozie in September, 1885. It certainly was not pressed. 
The circnlar was of date February 1, before the HaU affair, and before any 
direct dispute. HoUis, as quoted in Litohman^s report, being asked, **Had 
you predetermined that [to strike] before the discharge of HaU ? '^ answered : 
"Tes. There was no time arranged, but it was decided it should be done 
before the 1st of May.'' 

•It may not be without significance that HaU had succeeded a foreman 
who had been removed, at the request of the Knights, for aUeged incompe- 
tency. The railroad officers said that HaU was less efficient than his prede- 



THE SOUTH-WESTERN STRIKE 198 

to Marshall, ^^ to settle trouble at the shops." The agent 
answered, also by telegraph, that he knew of no trouble, 
and was too busy to come. On the 28th, he received a 
peremptory telegram, signed by Martin Irons, — the first 
Appearance of tiiat person in the strike.* To this mes- 
sage no attention was paid. The following morning Irons 
«ent another message, again asking an immediate answer. 
Still no attention was paid to him. The receivers and 
their officers certainly had reason to believe that serious 
•events were impending ; but they said that they knew of 
no troubles with their employees, and made no serious 
•effort to avert the struggle. The Knights were even 
more indifferent to efforts for peace. Irons did not trouble 
himself to go to Dallas to confer with the receivers' agent ; f 
nor did Hall go, though both were given an opportunity. 
Irons thought the agent had better come to see him at 
Marshall. The strike was ordered on the twenty-four 
hours' notice given by Irons's telegram. At three o'clock 
in the afternoon of March 1, on a signal from the whistle, 
the shop-men at Marshall, Big Springs, and Fort Worth, 
important points on the Texas and Pacific, dropped their 

* Irons^s telesnram was as f oUovs : — 

**Goy. Sheldon [one of the reoeiven] referred me to Dallas [where the 
agent wasl. I cannot come to Dallas, cannot control matters here long. If 
not settled by 2 o'clock March 1, 1886 [the next day\ most call out Texas and 
Pacific employees. Answer immediately by telegraph what action yon will 
take." 

See the telegrams in the Globe-Democrat of March 9. They are also printed 
in Receiver Brown's testimony before the Congressional Committee. Irons, 
it should be said, was not employed by the Texas and Pacific, but by the Mis- 
souri Pacific. 

t Irons testified before the Congressional Committee that passes were given 
to HaU for that person and two with him, to enable them to go to Dallas. 
But the executive board numbered five; and none of them went, ** simply 
because there were not passes for the whole board, and by going to DaUas it 
«ut me off from the use of the company's books, — a thing that we had been 
promised." *^I thought that it cost nothing for railroad officials to travel, 
and that Marshall was the proper place to investigate ; and I concluded that 
they had better come there, and so telegraphed Gbvemor Brown and Colonel 
l^oble." Irons said that, even if the passes had been handed directly to him, 
and not to Hall ( " ignoring us as a committee " ), he would not have gone to 
Dallas. 



194 QUABTERLT JOUBNAL OF ECONOMICS 

tools and quit work. The first move in the battle had 
been made. 

The receivers of the Texas and Pacific at once took 
the position which the roads maintained unflinchingly 
throughout the struggle. A citizens' committee at Mar- 
shall tried to bring about a truce. The receivers said 
they were willing to meet men actually in their service, 
but not men who had abandoned the service ; that they 
would not confer with a committee of the Kjiights of 
Labor ; and that they reserved the right to discharge for 
cause whomever they pleased. The men had declared 
themselves willing to return to work for the present, 
if a conference with a committee of the Knights were 
granted ; but they could not accept the terms offered by 
the receivers. The strike went on ; and, after the unsuc- 
cessful negotiations with Brown, it spread. A boycott 
was ordered on cars of the Texas and Pacific road ; and 
this boycott was not resisted by the Missouri Pacific, — 
a circumstance worth remembering. The road submitted 
for several days so far as not to touch the Texas and 
Pacific cars which were on its line. But the spread of 
the strike could not be checked. On March 6, the 
Knights delivered their second and severest blow, — the 
simultaneous strike on all the lines of the Missouri Pa- 
cific. It was a surprise to the officers of that system ; for, 
though they knew the struggle must come sooner or later^ 
they did not expect it at that time.* On the 8th, a third 
blow, and a serious one, was given. The workmen of the 
St. Louis Bridge Company struck. The bridge forms an 
independent railroad, running from East St. Louis, on the 
Illinois side of the river, over the bridge and through 
a tunnel into St. Louis. Almost all the terminal facilities 
in St. Louis are in its hands. It gives the only rail com- 

*lliere is ■omathing yery onrious in the relnotanoe of the leaden of the 
striken to give the exact lao^iiage of the message ordering the strike on the 
Minoori Paoifio. Irons was asked by the Congresmonal Committee what it 



THE 80UTH'WE8TEBN 8TBIKE 195 

munication between St. Louis and the East; and the 
twelve roads which converge in East St. Louis all have 
to use it in forwarding their traflSc to St. Louis. It is 
leased by the Missouri Pacific and the Wabash jointly, 
but is operated as an independent road. When the strike 
extended to the bridge, the city of St. Louis was deprived 
of by far the greater part of its railroad communications. 
After the strike was in full swing, after the system 
(which will presently be described) of stopping by force 
all traffic had been put into complete operation, then 
first did the strikers bring forward their grievances against 
the Missouri Pacific road. The St. Louis Republican 
printed on March 11 a statement of grievances, dated 
March 10, and signed by Martin Irons, the chairman of 
the executive board of District Assembly 101 of the 
Knights of Labor. It was said to have been mailed to 
Mr. Hoxie, the manager of the Missouri Pacific, but was 
never received by him;* and it was sent to no paper 
except the Republieanj which had shown some disposition 
to sympathize with the strikers. It was, in fact, a mani- 
festo to the public, and was issued in answer to an open 
letter addressed to the Missouri Pacific employees, which 
Mr. Hoxie had put forth a day or two before. Hoxie had 
laid stress on the fact that the alleged cause of the strike 
was the discharge of a man on the Texas and Pacific, a 
road with which the Missouri Pacific had nothing to do. 
This consideration was urged against the strikers time 

'waa. JSe said he had written it himaelf , but had " forgrotten " its meaninc. 
Being asked, **Toa oan*t give any idea as to its length or how it began? '* 
he answered, " No." But later, being asked if it read, " Strike on Satoiday, 
Haroh 6, 10 A^.,'* he said : '' WeU, I presume that is about the sum and sub- 
stance of it. There may haTe been something before that." It was in cipher. 

Irons had telegraphed to Mr. Kerrigan, the general superintendent of the 
Missouri Pacific system, that he should come to Marshall to " settle trouble *' ; 
Init, as Marshall was outside of that gentleman's jurisdiction, he very naturally 
answered that he would not go there unless by the request of the Texas and 
Pacific officeis. 

* Irons admitted in his testimony before the Congressional Committee that 
this document had neyer been mailed to Hoxie. 



196 QUARTERLY JOURNAL OF ECONOMICS 

and again during the next three months, and they 
found it diflScult to meet. They could not be convinced 
that, after the receivership, the Texas and Pacific ceased 
to be an integral part of the Gould system;* but they 
were met by the stubborn fact that the road was, in con- 
templation of law, in the hands of the United States 
court, and they felt called on to show that they had a 
quarrel with the Missouri Pacific itself. Accordingly, 
they set forth their grievances or demands. They asked, 
first of all, a formal recognition of the Knights of Labor 
by a conference between the officers of the road and 
District Assembly 101; increase of wages for various 
workmen ; the establishment of an apprenticeship system, 
by which but one apprentice was to be allowed for eight 
mechanics ; an elaborate and formal system of accusation 
and trial before a Knight of Labor could be discharged ; f 
and, lastly, that all men "unjustjy discharged" be rein- 
stated at the end of the strike. They alleged that the 
company had repeatedly violated the agreement of 1886. 
But these matters are not put forward as the main 
causes of the strike. Its true object appears in this vigor- 
ous passage, at the beginning of the manifesto: ^^It 

* This f eelingr was not annataral on the part of men as little oonTeraant 
with law as were the striken. Mr. Brown, one of the receivers, had been 
general solicitor of the Missouri Pacific and a yice-president of the Texas and 
Pacific ; though the other receiver, Mr. Sheldon, had had no connection with 
either road. The receivership brought very little change in the details of man- 
agement, most officers being retained. The Knights had a similar feeling in 
regard to the Wabash road,— that it was practicaUy managed from the Gould 
offices in New York. Several of them intimated, in their testimony before the 
Congressional Committee, that they believed the federal courts to be conniving 
with Mr. Qonld and other enemies of theirs. 

t ** When any employees who are Knights of Labor do not give satisfaction 
in the capacity in which they are engaged, it shall be made known to them in 
writing, that they may defend themselves in the f oUowing manner : the accused 
party to select two persons to aid in conducting the defence, and the officOT 
of the company in immediate charge to be allowed to select two persons to 
assist in conducting the prosecution ; and that the accused be tried before three 
disinterested parties,*' etc. *' The accused must be aUowed to remain at work 
until the charges are either disproved or substantiated." 



THE 80UTH'WE8TEBN 8TBIKE 197 

is the belief of Knights of Labor on the system that the 
companies have inaugurated a systematic method for the 
purpose of breaking up the organization of the Knights 
of Labor, and that the placing of the Texas and Pacific 
in the hands of a receiver and under the jurisdiction of 
the United States court is the main feature of the scheme ; 
and in order to meet and defeat these contemptible and 
blood-sucking corporations and their governmental allies, 
and in order to secure redress for grievances and the fol- 
lowing demands, we have inaugurated this strike." * In 
truth, the leaders of the Ejiights paid little attention to 
the redress of grievances. Irons informed the Congres- 
sional Committee that the executive conmiittee of District 
Assembly 101 had as many as a hundred grievances in its 
hands, which had accumulated from the Local Assemblies; 
but it had not presented any of them to the oflScers of the 
roads. The only reason given for this inaction was ** the 
pressure of other duties." When Irons was on his way to 

*The same spirit is shown still more plainly in the manifesto issned, a few 
days later, by District Assembly No. 93, which, as wiU presently be seen, came 
to the support of Assembly No. 101 by extending the strike to Illinois. In 
this document, it is said : *^ We are dealing with a class of men who combine- 
their capital, not merely for the purpose of transacting legitimate business, 
but of doing so on a scale so large as to control and imperiously command 
erery interest directly or indirectly growing out of that business, or to crush 
what they cannot control or conunand. . . . But, in the transaction of that 
businees, it becomes indispensable that they should utilize a certain power, 
without which their business is as an engine without steam. That power ia 
Tested in another class of men, who, profiting by the lesson taught them by 
the owners of capital, like them have chosen to combine, ... for the purpose 
not only of transacting their legitimate business, but of doing so on a scale so 
large as to control and imperiously conunand every interest directly or indi- 
rectly growmg out of that business, or crushing what they cannot control or 
command.''— Giobe-Demoarat^ Biarch 12. 

In HoUis's testimony, as adopted in litohman's report, the grievances of 
the Knights are stated somewhat differently. It is aUeged : (1) that in 1885 
only the wages of men who had struck were restored, not those of men uncon- 
cerned in the strike of that year (this was frequently complained of, by the 
Knights, who testified before the Congressional Committee, as a violation of 
the agreement of 1885, yet that agreement had specified ** striking em- 
ployees ") ; (2) that mechanics were not so highly paid as their skiU warranted 
(" I consider, as a mechanic, that I have judgment as weU as the officials,'* 



198 QUABTEBLT JOURNAL OF ECONOMICS 

Marshall to attend the convention there, he stopped in 
St. Louis, and had a conversation with Mr. Kerrigan, the 
general superintendent of the Missouri Pacific system, 
who gave him a pass to Marshall. At this time, the circu- 
lar asking the Local Assemblies if they would support a 
strike had already been sent out ; yet the concurrent tes- 
timony of Kerrigan and of Irons shows that the latter said 
not a word as to grievances or impending troubles, though 
he obtained his pass on the ground that he was on his 
way to a convention of Knights. 

The strike was now in full blast. At first, the operations 
of the roads, so far as the carriage of freight was con- 
cerned, came almost completely to a stand-still. But this 
was not due entirely, or even mainly, to the impossibility 
of getting men to do the work. The strikers by no means 

said Mr. Hollis) ; (3) that Mr. Hozie refused to ettablkh a role that charges in 
writiiig should he hronght aflrainst a man, and an opportnnitj he given him 
to defend himself, hef ore he oonld he discharged ; (4) that the road refused 
to pay all common lahorera $1.50 a day ; (5) in general, that men were dis- 
charged hecanse of their connection with labor organisations. Only a single 
specific case of this last-mentioned grieyance is referred to. 

Hall, whose discharge was the occasion of the strike, testified as foUows 
before the Con g r ess ional Committee : — 

" Q. — Was it your understanding that one of the objects of the strike was 
to make your opponents feel the power of the order, so as to respect its de- 
mands more <]^aickly next time? A,— The recognition that labor had, or 
should have, with the officers of the roads nined graduaUy in the goTemment 
of the road ; that is, in the wages that should be paid the men for certain 
classes of work." 

"Q.— One of the objects was to make the railroad officials understand 
that they should recognize the officials of the Knights of Labor as such in ad- 
justing grieyances and differences ? A, — Tes, sir." 

HaU also admitted frankly that the strike had been " a serious blunder 
and mistake." 

Perhi4>s the fairest statement of what the Knights meant when they de- 
manded a " recognilaon " of the order was also given by HaU : *^ I think it is 
that the officials, not only of this road, but of other roads, should recognize and 
treat with a committee appointed by the order to settle by arbitration the 
difficulties or grierances that might arise. As it is and has been, a man em- 
ployed on this railroad, for instance, is appointed on a committee to adjust 
a grievance ; and he is liable to be discharged for it. If the order was recog^ 
nized so that they would be there, recognized in an official capacity, it would 
be a man not employed by the railroad, over whom they could have no control ; 
and, consequently, he could do better, and could make a better demand, than 
one who is employed by the road, and afraid to speak out what he thinks." 



THE 80UTH'WE8TEBN STRIKE 199 

included all the employees. Much the greater part of the 
workmen took no part in it. The locomotive engineers 
from the first refused to aid or abet the strikers, and a 
bitter quarrel arose in consequence between their Brother- 
hood and the Knights of Labor.* The conductors were 
equally out of sympathy with the strikers, and in many 
places passed public resolutions expressing their willing- 
ness to conduct trains. The firemen and brakemen, as a 
rule, remained loyal to the company, and were willing to 
work, unless prevented by force or threats. Many un- 
skilled laborers seem to have taken no part in the strike. 
The Knights of Labor resorted to circulars addressed to 
^^all laborers, such as trackmen, engine-wipers, coach- 
cleaners, baggage and freight hands," calling on them to 
lend aid to the Knights by refraining from work. The 
actual strikers were mainly shop-mechanics, switchmen, 
and yardmen. These were the men concentrated at the 
centres of traffic, at the larger shops and yards, at the 
places where machinery was overhauled and most of the 
freight was shipped and received, where all trains had to 
stop and their movement was most complicated and diffi- 
cult. These were the most vulnerable points on the 
roads; yet, also, since they were fairly populous towns, 
the points where it would have been easiest to replace the 
men who left work. No doubt, the sudden departure of 
all the skilled shop-mechanics and of the practised yard- 
men and switchmen must in any event have crippled the 
roads for some time. Yet business might have been con- 
tinued in some fashion, and before long men could un- 
doubtedly have been found to fill the vacant places.f 

*At a general oonyention of the Brotherhood of LocomotiYe Engineers, 
held on September 6, a yote was passed approying the course of their ehief , 
Mr. Arthur, during the strike. Mr. Arthur had told the engineers to remain 
at their poets and to disregard the strike. 

t The reoords of the Missouri Pacific system state that on March 6 there 
were employed on the whole system 13,993 men, not including general ofEce 
employees. Of these, 3,717 struck ; while 6,095 were suspended because the 
strike put an end to the work on which they were engaged. 



i 



200 QUABTERLT JOURNAL OF ECONOMICS 

But the fighting machinery of the strikers was by no 
means limited to the mere act of quitting work. They 
took complete possession of the roads, and systematically 
put a stop to all freight traffic. When the strike broke 
out, squads of Knights stationed themselves in the yards^ 
and buildings; and the railroad officers were formally noti- 
fied that the premises were under their guard. Thus, at 
the large yards at St. Louis, under pretence of protecting^ 
the property of the roads, none but striking Knights were- 
permitted to enter. When an attempt was made to move 
trains against their will, they went farther. Two days^ 
after the strike began, some Missouri Pacific officers at 
Denison, Texas, tried to move a freight train. "The 
watchman whom the Knights of Labor had stationed on 
the premises pulled the large shop whistle, and about two 
hundred strikers appeared in an incredibly short space of 
time. After failing to argue the officers out of their pur- 
pose, they opened the furnace of the engine and drenched 
the fire with water through a hose, took off the steam-pipes,^ 
knocked the pins out of the side-rods, and killed her dead. 
All other engines in the shop, except passenger engines, 
were also bled to death, and rendered as useless for power 
as so much old iron. The strikers then put guards about 
the buildings, and would allow no one not a railroad man 
to go about the premises." * That is typical of the course 
of events during the first fortnight of the strike. The 
disabling, or " killing," of engines was the simplest and 
most effective way of stopping traffic ; and every freight 
engine the strikers could find was " killed." f If a train 
succeeded in getting ready, the strikers tried to persuade 
the engineer to abandon the engine, the persuasion rising 
often to a warning of danger. If the engineer remained 

• St. Louis Qlcbe'Democrat, March 9. 

t The roads report that, of 598 engines in service, no less than 434, or 
neariy three-qnarters of the whole number, were disabled at one time or 
another during the strike. 



THE SOUTH-WESTERN STRIKE 201 

steadfast, they boarded the train, set the brakes, and 
pulled out the coupling-pins. If a train managed to get 
off, they mounted any engine that was at hand, started in 
pursuit, and put the train on a side-track. 

The stoppage of traffic was confined, in the main, to 
freight operations. Passenger trains, as a rule, were not 
interfered with, though the general demoralization of the 
whole system necessarily made the passenger service un- 
certain and hazardous. The strikers' willingness to spare 
passenger traffic was not due to any regard for the con- 
venience of the public. It seems to have been based on 
the idea of respecting the United States mails, which 
were carried on almost all the passenger trains. Siibuiv 
ban trains, which carried no mails, were stopped as per- 
emptorily as freight trains ; and, for ten days, few of the 
regular trains could be run between St. Louis and the 
surburban towns on the Missouri Pacific. The fear of 
encountering the federal government, which saved the 
mail trains, showed itself in other ways. When a car 
loaded with supplies for federal troops came along, it was 
taken in charge by the strikers, put behind an engine, and 
sent on to its destination. Of greater importance was the 
&ct that the Wabash road, which was in receivers' hands 
and enjoyed the protection of the federal courts, was, 
practically, not interfered with at all. The Texas and 
Pacific, though also in the hands of the federal courts, 
was treated as summarily as any of the Missouri Pacific's 
own lines, perhaps because the Texas and Pacific had 
been so recently an integral part of the Missouri Pacific 
system.* 

*The protectioii of the United States courts could probably have been 
invoked by the Missouri Pacific for its own lines. The so-oaUed Ku-klnz Acts, 
passed in 1870 and 1871, Revised Statutes, §§ 5506, 5519, yeiy likely sui&ced 
to giye federal jurisdiction. But the road refrained from forcing matters in 
this way. It waited until public opinion caUed on the State authorities for 
action. Injunctions were immediately obtained in the State courts of Missouri, 
Kansas, Arkansas, and Texas, restraining the strikers from trespasBii^ on tho 
company's grounds and obstructing its trains ; but not the least attention was 
paid to them. 



202 QUARTEBLT JOURNAL OF ECONOMICS 

Meanwhile, the policy of Mr. Hoxie, the manager of 
the Missouri Pacific, was one of masterly inactivity. It 
was a shrewd policy. The road was under the cloud of 
suspicion which, rightly or wrongly, overhung everything 
connected with the name of Gould. Public opinion at 
first was against it. In the innumerable statements and 
counter-statements which day after day filled the news- 
paper columns, it was hard to discern the true character 
of the strike ; and the public was inclined to think that 
the Gould road was in the wrong. As long as this was 
the case, the road could not hope for vigorous aid from 
the State and city authorities ; and, without such aid, the 
strikers could not be successfully met. Mr. Hoxie accord- 
ingly let the effects of the strike work themselves out. 
For form's sake, attempts were made to run trains ; but 
the strikers easily and promptly stopped them. Injunc- 
tions were served, and some arrests of trespassing 
strikers took place; but this notification that they were 
law-breakers, while it may have had an effect on the 
minds of the strikers, did not cause them to swerve a 
particle from their chosen line of conduct. Freight traffic 
lay dead. The road discharged or suspended conductors, 
engineers, clerks, freight hands, station agents, teleg- 
raphers, for whom it had no work, and brought home the 
meaning of the struggle to them and to the public. In 
the early days of the strike, the police commissioners in 
St. Louis were asked to protect the road. They evaded 
the demand by saying they had no men to spare. Mr. 
Hoxie told them he could wait as long as they could ; * 
and he waited. 

The effect of this policy was quickly apparent. The 
merchants of the large cities, and especially those of St. 
Louis, found their business melting away. Factories felt 
a dearth of material, especially of fuel. In many direc- 
tions, their goods cotdd not be shipped. Several flour- 
mills and brick-works had to close : others had to buy 

•I have this on Mr. Hoxie^s own statement. 



THE SOUTH-WESTERN STRIKE 208 

coal at high prices. The entire coal supply of St. Louis 
comes from Illinois, and the strike on the bridge stopped 
rail communication with the eastern side. The ferries 
for a while afforded a substitute ; but, when the strike 
extended across the river to East St. Louis (of which 
more presently), coal was absolutely shut out. Indeed, 
Eastern roads were then entirely disabled from business. 
A degree of relief was found, however, in an unex- 
pected quarter. The Wabash, one of the so-called Gould 
roads, was protected, as has already been noted, by the 
federal courts, and carried on its operations with little 
trouble throughout the strike. As it happened, the yards 
of the Wabash, alone of all the roads centring in St. 
Louis, were so placed that it could easily transfer cars 
from the eastern to the western side of the river ; and, on 
both sides, it was effectively protected by the federal arm. 
This became known to shippers, and the road secured a 
large business. Moreover, certain coal mines, which were 
" Gould properties," were on the line of the Wabash in 
Illinois. When coal became scarce in St. Louis, these 
mines, shipping over the Wabash, found an active market 
at high prices. The strikers, in order to check this dis- 
appointing turn of affairs, tried to induce the coal-miners 
in Illinois to strike, but without success. The result was, 
curiously enough, that both the Wabash and the Gould 
mines found the strike highly profitable. 

At the less important places on the line of the Missouri 
Pacific system, the effects of the strike were more serious. 
At various points, factories were closed. At Sedalia, the 
head-quarters of the strikers, where Irons lived, coal gave 
out at the end of a week. The strikers informed Mr. 
Hoxie that they would permit coal-trains to be run to 
the town, but they were promptly told that either all 
trains must run or none at all. The inconvenience and 
distress were greatest in the towns of the interior and 
among the farmers. Small stocks of goods were kept in 



204 QUABTEBLT JOtTBNAL OF ECONOMICS 

the villages on the line of the roads. They were depend- 
ent on the regular continuance of railway service. Gro- 
ceries, flour, oil, fuel, became scarce. In many places, 
actual distress ensued, and trains of wagons were started 
to supply the most urgent needs. 

Public opinion began to veer. It was, however, singu- 
larly slow in expressing itself. The newspapers at the 
outset reflected the general uncertainty ; and three of the 
largest papers in the State* had begun by abusing Jay 
Gould, blaming the roads, and encouraging the strikers. 
Their tone changed as the strike went on, and even those 
that at first catered most subserviently to the "labor 
interest," tried to rein in the Knights. Two weeks after 
the strike broke out, meetings began to be held at towns 
on the line of the road, protesting against the blockade 
and the methods by which the strikers maintained it. In 
St. Louis, the first public protest was made as late as 
March 24; and it was very mild. People did not rally 
quickly to the support of the Gould road, but they were 
forced to it by the facts of the situation. The most 
significant sign of the change in public opinion was in the 
action of the governors of Missouri and Kansas. As in 
the previous year, they interposed of their own accord. 
They sought out the Knights at Kansas City on the 19th. 
After discussing the situation with them, they addressed 
the next day a letter to Mr. Hoxie. They admitted that 
the company had kept its agreement of 1885, but asked 
that it should take back its old employees without preju- 
dice for their action in the strike. Mr. Hoxie answered 
that he was willing to take back the old men; but he 
would take back none who had committed violence, and 
would discharge none who had been engaged since the 
strike began. The Knights testily repudiated the inter- 
ference of the governors, and ignored Mr. Hoxie's offer.f 

*The St. Louis Republican and Post-Dispatch, and the Kansas Citj Times. 

fSee the letters in Official Correspondence (a pampUet issued by the 

Missouri Paeifio), pp. 25-^. Koohtitsky, the Commissioner of Labor Statistics 



THE SOUTH-WESTERN STRIKE 205 

A few days later, on the 23d and 24th, proclamations were 
issued by the governors of Missouri, Kansas, Arkansas, 
and Texas, ordering the company to resume traffic, and 
forbidding all persons from interference with it. 

Mr. Hoxie judged it was time to move. He had the 
public behind him at last. The city authorities in St. 
Louis now gave him all the policemen he wanted. On 
the 24th of March, eighteen days after the strike began, 
the first freight train was moved out of St. Louis. Half 
a hundred policemen were on it, and as many private 
guards. Another half-hundred policemen lined the 
tracks. There were some hitches. Coupling-pins were 
drawn, and the train broke in two ; but it was brought 
together again, and got off with comparatively little 
trouble. Another train went from St. Louis the next 
day, under the same precautions. This time, a few miles 
out of the city, shots were exchanged between the train- 
guards and the strikers; but no one was hit. Still an- 
other train went out the third day ; and, from that time' 
on, the blockade was broken. At various points, trains 
were started during these days, always under heavy 
guard ; and most of them succeeded in getting through. 
They encountered misplaced switches and crowds of 
threatening strikers. The engineers were warned that 
it was not safe to run. But, by the last days of March, 
freight trains were running on all parts of the system, — 
in Missouri, Kansas, Arkansas, and Texas. There were 
points (such as Parsons, Kansas) where the strikers re- 
mained in possession, and everywhere traffic was still 
slow and uncertain. But the blockade was broken. The 
people on the line of the roads expressed their satisfac- 

of MiflBonri, stated to the Congreflfdoniil Conunittee that Powderly, who was 
present at the conferences between the govemois and the Knisrhts, had agreed 
with the goremors that the men should go to work on the terms here pro- 
posed by Hoxie. **Bnt the ezeontiTe committee [of Assembly 101], when 
they were informed of this result, said : *' No, we cannot accept it. We only 
want an interview with Mr. Hoxie.* *' 



206 QUARTERLY JOURNAL OF ECONOMICS 

tion in the spontaneous Western fashion. At Warrens- 
burg, Missouri, the first freight train arrived on the 27th. 
"One thousand citizens, headed by the mayor and the 
Quarry City comet band, met the train, and set up 
Havana cigars for the train men." At Appleton City, 
"flags were displayed; and a large crowd of citizens, 
headed by the brass band, repaired to the depot, where a 
couple of pieces were played, and three cheers given for 
the men who were willing to assist in resuming freight 
traffic. The train crew were presented with a box of fine 
cigars." 

The turning-point had been reached : the strikers were 
virtually defeated. They did not admit it. Indeed, as yet 
they did not realize it. But they saw that they were losing 
ground, and must make another aggressive move. They 
had been threatening from the first to extend the strike, 
and make it general on the roads west of the Mississippi. 
So much they never succeeded in doing. But at St. 
Louis they were able to deliver one other blow: they 
extended the strike to East St. Louis. As early as 
March 18, District Assembly 98 of the Knights of Labor 
had sent a circular letter to the managers of the roads 
running into East St. Louis, asking an advance of switch- 
men's wages to what is known as the "Chicago scale." 
This demand, not unreasonable in itself, had been granted 
by some roads, and promised to be granted by the rest, 
as early as the 19th. Nevertheless, on the 25th, the day 
after the Missouri Pacific succeeded in running its first 
freight train out of St. Louis, the yardmen and switch- 
men in East St. Louis, at the usual whistle signal, simul- 
taneously quit work. No grievances were alleged. The 
strike was avowedly meant to aid the Missouri Pacific 
strikers ; Assembly 98 came to the aid of Assembly 101. 
The effect was to stop entirely all traffic between St. 
Louis and the East. The roads running into East St. 
Louis, though prevented by the strike from crossing the 



THE aOUTH'WESTEBN STRIKE 207 

bridge, had hitherto made shift to transfer some freight to 
St. Louis by ferry. But now the roads themselves were 
prevented from doing anything. The city of East St. 
Louis is a collection of railroad yards and sheds, inter- 
spersed with rickety wooden buildings. Its inhabitants 
are mainly the railroad workmen and purveyors of food, 
drink, and lodging to them. The city authorities were 
known to be in sympathy with the strikers. The place is 
on the Illinois side of the river; hence policemen from 
St. Louis and militiarmen from Missouri were not to be 
feared. The strikers openly boasted that it would not be 
as easy to run trains here as in St. Louis. 

Meanwhile, in the States west of the river, the strikers 
became more bitter and lawless in proportion as the roads 
were successful in resuming operations. The killing of en- 
gines and side-tracking of trains, which had been common 
in the earlier stage, were succeeded by more reckless vio- 
lence. The tracks were soaped, switches were tampered 
with and trains thrown off. Signal lights were changed. 
Bridges and trestles were burned. The engineers received 
more and more frequent anonymous warnings that it was 
"not safe" to run trains.* Threatening letters, also 

*The foUowingf which was handed to the CongreBsional Committee by an 
ensrineer, is a specimen, and rather a moderate one : — 

''March 22, 1886. 

"ADDRB88ED TO ENODfESBS AND FlREMSN: 

'' Bcys^ — We warn yon not to ran trains ont of Atchison. It is with regret 
we tell voUf as we call yon brothen. 

** If yon do, your lue will pay the forfeit. Boys, we want to throw off the 
yoke of serfdom, and be free men like yourselves. Don^t deny us what at 
one time you prayed for.^* 

One of the shop-foremen received this blood-thirsty epistle : — 

Cow-boys' Ranch, Texas, Majr 1, 1886. 
JET. 8, Spanker, — You and your friends have paid no attention to the 
notice ^ou received a few days aero, instracting you to leave this place. We 
have visited your house, and found vou had moved to another and also quit 
oominfiT to the round-house after night, which is very well for you; but we 
have selected a man out of our gaox for the purpose of Ivnchingr you all, and 
he will ^et you sooner or later, if jrou don't leave. He is a man that has 
stained ms hands several times, and wUl stain them again, if you men will not 
leave without. We have warned yon our last time, so you can look out. We 
think our man will get the last one of you pretty soon. 
Tours, 

Knights of Labor Cow-bots, Mob No. 1. 



4 



208 QUABTEBLT JOURNAL OF ECONOMICS 

anonymous, were sent to Mr. Hoxie and other Missouri 
Pacific officers. "Scabs'" were beaten whenever there 
was a chance. Boarding-houses that entertained them 
were boycotted. The company had to establish houses of 
its own to shelter its workmen. Something like a reign 
of terror had set in. Law and order leagues were formed 
against the strikers, and in all the four States the mili- 
tary were called out. Near Sedalia, as early as the 23d of 
March, a train was wrecked, and two men were injured. 
Three weeks later, another wreck was caused at the same 
place by the removal of a rail. At Kansas City, two or 
three days after the first train was nin, a wreck was 
caused by a switch turned under the train. At Fort 
Worth, Texas, and at Parsons, Kansas, the strikers were 
especially turbulent. At Parsons, they ruled the town ; 
and not until a strong force of militia arrived there, on 
April 3, was order restored. At Fort Worth, on that 
day, a train was fired on by ambushed strikers ; and three 
deputy-sherififs were shot, one of them fatally. On April 
26, when the failure of the strike had become palpable, 
a train was wrecked by a displaced rail at Wyandotte, 
opposite Kansas City, and two men were killed. 

At East St. Louis, the course of events was similar. 
At first there was comparative quiet. But, when the 
attempt was made to resume traffic, the strikers became 
violent. Teamsters and freight handlers were driven 
from their work. Engines were killed. The civil author- 
ities were powerless : deputy-sheriJBfs were laughed at by 
the mob. The sheriff sent word to Governor Oglesby 
that he could do nothing, but the governor was slow to 
act. He sent his adjutant-general to East St. Louis, and 
went there himself, and harangued the strikers, telling 
them he was a friend of the laboring man, but that they 
must not be disorderly. The roads tried to move trains, 
under heavy guards of deputynsheriffs. Finally, on April 
9, some of the undisciplined guards, frightened by the 



THE SOUTH-WESTERN STRIKE 209 

threatening crowd, fired into it, and killed half a dozen 
people. Then, at last, the militia were sent to the town, 
and order was restored; but furtive acts of violence 
continued, in occasional shootings, incendiary fires, the 
beating of unprotected "scabs." For a month, traffic 
could be carried on only under the guard of the soldiers. 
There is no doubt that the acts of violence are to be 
laid at the door of the Knights of Labor of Assemblies 
101 and 93. Their leaders, it is true, constantly pro- 
tested that violence and disorder were contrary to the 
principles of the Knights, and could be the work only of 
individual reckless spirits. But this was a mere pretence, 
and a shallow one.* They had a notion that they werfe 
carrrying on a war; that they had the rights of bellig- 
erents; and that all hostile measures were justifiable.f 

* At East St. Louis, the leaden of the Knights said to the adjutant-generml 
that they were peaceable, and wonld not interfere with trains ; but, when a 
train was started, it was boarded, the coapling-^ins were drawn, and the 
brakes set, under his eyes, — the Knights^ committee-men, meanwhile, running 
alongside, 8h<mting in yain to their foUoweis that the adjutant-general was 
looking on, and that the train should be let go. The same thing happened at 
Parsons, Kansas. Giobe-Democrat^ March 31, May 5, and the testimony before 
the Congressional Conmiittee. 

t The adjutant-general of Kansas testified before the Congressional Com- 
mittee that at Parsons ** Buchanan [the local leader of the Knights] took the 
position, and another gentleman, by the name of Hollis, who was present at 
that time, that they were entitled to the rights of belligerents ; that it was jus- 
tifiable revolution. . . . Mr. Buchanan went so far as to bring his dictionary to 
show me the distinction between revolution and rebellion, and argued it at 
some length.'* Irons was asked by a member of the conmiittee, **Do yon 
regard a strike as very much like an act of war ? ** Antwer: " A strike, when 
right, is represented to be a struggle for right. Tes, sir.** And again : ** And 
it is an act of war, and is often followed by riolence, is it not? ** Antwer: 
** Often foUowed by yiolence on the part of, perhaps, the property owners 
themselves ; and, I think, in most cases so.** 

The foUowing bit of testimony is only in part relevant at this point, but I 
quote it in fuU, by way of illustrating the temper and methods of the Knights. 
It comes from a merchant tailor, a witness before the Congressional Committee : 

*|Q. — Were you a Knight of Labor until the strike? A. — Yes, sir. I 
was in good standing up to that time. I was at but one meeting after the 
strike. I was requested to go there one night ; and I was there awhile, until 
thev commenced to detail pickets. I asked them what that was for, and they 
said. To go and guard the roads. I don*t know whether I am allowed to use 
the language I use sometimes. 



210 QUABTEBLT JOURNAL OF ECONOMICS 

Irons harangued the East St. Louis strikers, and advised 
them to give " pills to scabs." * A Knight of Liabor from 
De Soto told the Congressional Committee that the Master 
Workman of his Local Assembly had ordered him to aid 
in stopping trains ; when he refused, he was expelled from 
the order. This same Master Workman told the locomo- 
tive engineers that the Knights must win, " by fair means 
or foul." t When the train at Fort Worth was fired on 
from the ambush, the Master Workman of the Local As- 
sembly was recognized as the leader of the shooters. 
The men who wrecked the train at Wyandotte were 

* ''Q.— Tes, sir. ^.— 'WeU/ says I, Tn be damned if I n> and be a 
picket. I have done my picketingr.* And I ^ot up and walked out, and I 
neyer went there since. Preyious to that, — prenous to the strike, — I receiyed a 
note, a letter, from the office, which I wonld like to read. * De Soto, Mo., March 
4. Brother Becker. — It wonld be a gtx>d thin^ for the welfare of yonr son not 
to make himself so onsy. R. R. D.J it is signed. I went oyer immediately to 
the office. My son is a clerk in tne office, under Mr. Kennan, the diyisioo 
soperintendent ; and I handed him that letter, and told him to read it. [It m- 
peared that the son had helped in handling a boycotted freight car.] Says I, 

My son, do yon nndentand that ? ' He sa ys, * I do.* I says, *' My son, I want 
yon to attona to your leeitimato business. Whateyer the company requires of 
you to do, do it faithfully : and any man that interferes with you luid your 
DusinesB, shoot him^ana, by Qod, I will stand by yon.* That is the way I 
talked to him. . . . That eyening Mr. Biike Connell, I belieye his name is, came 
into my shop ; and he addressed me. Says he, * Commander,* says he, ^ I would 
like to talk with you.* Says I, *' All right, sir.* Says he, * I don*t want you to 
get excited.* Says I, * I hope I won*t.* This was before the strike, on the 
eyening of the 5th. Says he, * I come in to tell you, — to speak to you about 
your son Elmer. It seems he is busying himself around a good deal ; and,* 
says he, * it will be to your adyantage, and also to lus*n, if you would haye him 
attend to his buainess.* Says I, * I thank you for your kindness for cominp: in 
and telling me this ; but,* says I, * I receiyed a letter purporting to be just 
what you said.' ^ And then I used some langruage in regara to the man who 
wrote it not signing his name to it. * Well/Nuiys he, * it will be to yonr adyan- 
tage, your busmess adyantage, and also to £lmer*8, to make him just attend to 
his legitimate business ; and, if he don't,* says he. * after this thing is oyer,* 
says he, ^perhaps he can*t stay there.* I says, * Why? * He saysj We will 
haye him turned off.* Says I^ Just as long as he attends to the busmess right 
for Mr. Kennan and the railroad company, he will stay there.* He says, 

* Stop : Mr. Kennan won*t stey there. Perhaps we will turn him off.* I says. 

* Not by a damned sight.* That is the language I used. That is my way ot 
expressing myself. . . . 

" Q.— You say you had finished your time of picketing. Where did you 
picket ? A. — In the army, — in the Union Army, sir. 

** Q.— Did you ? A,— I did, sir ; and I am proud of it.** 

* See the testimony of A. F. Walsh before the Congressional Committee. 

t St. Louis Gtcbe-Democrat^ May 12. In this issue of the Globe-Democrat^ 
Goyemor Curtin, of the Congressional Committee, is reported as saying : " It 
is obyious that their [the Knights*] officers at De Soto and elsewhere sanctioned 
and organized this sort of thing. It is a waste of time to keep asking if the 
KnightB of Labor knew anything about stopping and derailing trains.** 



THE SOUTH-WESTERN STRIKE 211 

ferreted out by detectives in the course of the summer. 
Their confessions showed that the deed had been planned 
in the Knights of Labor meeting-room in Kansas City, 
and that the wrecking party had been led by the head of 
the Local Assembly.* 

We turn now to another phase in the strike, — the action 
of the General Executive Board of the Ejiights of Labor.f 
The constitution of the order gave this Board no author- 
ity in the matter of strikes. Strictly, the District Assem- 
blies were subject to no control. Yet the Board had often 
exercised an influence or authority over District and Local 
Assemblies; and during the Wabash strike of August, 
1886, it had negotiated on behalf of the Knights of As- 
sembly 101, and had made pledges that purported to bind 
them, — among others, that no strike should take place 
without notice to the officers of the Missouri Pacific.J 
When the strike of 1886 broke out, the vice-president of 
the Missouri Pacific telegraphed to Mr. Powderly, the 
head of the order, asking what it meant. The strike, 
however, was a surprise to that gentleman. He had little 

* Globe-DemocrcU^ Jnlj 19. [The trial for murder of this person, the chair- 
nian of the executiye board of the Local ABsembly at Kansaa City, was going 
on when this article went to prees.] 

fThe letters that passed between the Board and the Missonri Pacific 
officers, and the appeals of the Board to the public, are collected in the pam- 
phlet entitled Official Correspondenct. 

I As to the powers of the General Board, the reader should consult Com- 
missioner Wright^s account of the Knights of Labor, in this volume. Dur- 
ing the Wabash strike, the following order, dated St. Louis, Aug. 18, 1885, 
was issued by the General Board : ** To all Aasemblies : All Knights of Labor 
in the employ of the Union Pacific, or of any of its branches, Gould^s South- 
western system, or any other railroad, must refuse to repair or handle in any 
manner Wabash rolling-stock until further orders from the General Executiye 
Board ; and, if this order is antagonized by the companies, your executive com- 
mittee is hereby ordered to call out all Knights of Labor on the above systems, 
without any further action. By order of the General Executive Board. Fred- 
erick Turner, S. G. T.^* This boycotting order is printed in the Gtobe-Democrat 
of April 26, 1886. It is authentic. The railroad companies knew of it at the 
time ; and on the Union Pacific, where there was then much friction with the 
Knights, the officers had determined to fight on that issue. The settlement of 
the Wabash strike prevented the matter from coming to a head. 



212 QUARTEBLT JOURNAL OF ECONOMICS 

idea of what it meant, and he made no answer. But he 
went to the West about the middle of March, and looked 
over the field ; and there is no doubt that what he saw 
did not please him, and that he tried to check the strike.* 
An attempt was being made by the striking Knights to 
extend the strike to other roads; from the first, they 
had been threatening to bring on a general railroad strike. 
The only serious danger of a spread of the strike seems 
to have existed on the 18th and 19th of March. At that 
time, delegates of the Knights on the Union Pacific road 
(on which the Knights were numerous and firmly organ- 
ized) went to Kansas City to see whether they should 
aid their brethren of the Missouri Pacific.f The result 
of the conference, at which Mr. Powderly was present, was 
not favorable for the strikers. The Knights of the Union 
Pacific refused to join them. The secrecy which is usual 
with the Knights was observed in regard to the meeting, 
but there is little doubt that the influence of Mr. Pow- 
derly was exercised in favor of peace. District Assembly 
101 was left to fight its own battle, with such aid only as 
it could get from the General Board. 

At the time of the Kansas City conference, Mr. Pow- 
derly wrote to Mr. Hoxie, asking an interview. Mr. 

*Mr. Powderly at yarious times expressed oondemnation of the strike. 
Accordiiig to Koohtatsky, Commissioner of Labor Statistics of Missonrif Mr. 
Powderly said to Qoyemor Martin of Kansas that the strike was without need 
or cause. See Koohtitsky*s testimony before the Congressional Committee, 
Globe-DemocrcU^ May 9. To Mr. Qonld he said that the strikers had disobeyed 
the laws of the Knights, and that he had it in mind to revoke their charter. 
See the stenographic report of the conference of March 30 between the General 
Board and the Biiasouri Pacific officers, Official Correspondence^ p. 23. The 
strike seems to have been the occasion of Mr. Powderly^s *' secret circular " to 
the Knights (dated March 13, and printed in all the newspapers within a fort- 
night), in which strikes in general are reprehended. 

t In the stenographic report of the interview of March 30 between the 
Knights' Board and the Missouri Pacific officers, the foUowing passage occurs. 
Official Correspondence, pp. 24, 25 : — 

*^Mr. Hopkins, This ia a letter from Omaha, peaking of the state of 
things on the Union Pacific : * The executive oomnuttee of the Knights of 
Labor on the Union Pacific — their head-quarters being at Denver — went to 



THE SOUTH'WESTEBN 8TBIKE 218 

Hoxie sent a pungent though courteous answer, the gist 
of which was that he had been taught by his experience 
not to deal with the Knights ; and he refused to meet any 
one as representative of the order. The negotiations then 
shifted to New York. On the 27th of March, the General 
Board of the Knights sent a formal letter to Mr. Gould 
as president of the Missouri Pacific Road. They pro- 
posed arbitration. Then ensued that curious correspond- 
ence which for several days kept the country in a state of 
wonder, and in which the leaders of the Knights showed 
but little diplomatic skill. Mr. Gould consented to meet 
them as " private individuals." The result of a long in- 
terview was that Mr. Gould sent a telegram to Mr. Hoxie. 
saying that " we see no objections to arbitrating any dif- 
ferences between the employees and the company, past 
or future." It is not easy to see that Mr. Gould here 
committed himself to anything ; and, obviously, it is un- 
certain whether " past or future " refers to the employees 
or to the diflSculties. But the Board pronounced this 
satisfactory, — nay, proclaimed in the newspapers and tele- 
graphed to Irons that " Gould has consented to our propo- 
sition for arbitration " ; and Mr. Powderly ordered the 
South-western Knights to resume work. But Mr. Gould 
pointed out the next day that he had by no means con- 
sented to arbitrate in the sense in which Mr. Powderly 
had given the public to understand that he would. He 



I City the other day on the war-path. They were preparing for a strike 
eyerywhere. They got back to Denyer on the 20th. My informant writes me 
that their whole temper had changed. In oonyersation amongthemaelyes, they 
bitteriy denonnoed tne Knights of Labor of Missouri and Kansas. . . . Pow- 
derly, they say. was ri^ht in going home ; that he could not defend the action 
of the men ; tnat their demands were outrageously unjust ; that they were 
tyrannical and aggreesiye.^ 

** Mr, Powdenv, There is not a word of truth in that thing from beprin- 
ning to end. . . . Tney did not go on the war-path. . . . They were of the idea 
that they were not to make further trouble. They went back with the same 



The letter from which Mr. Hopkins quoted came from a thoroughly cred- 
ible source, known to the present writer, who is constrained to belieye, not- 
withstanding Mr. Powderiy's denial, that the Union Pacific Knights went to 
Omaha with a mind to aid the South-western strikers, but, after looking oyer 
the field, concluded, for whateyer reasons, not to take any action. 



214 QUARTERLY JOURNAL OF ECONOMICS 

had merely given Mr. Hoxie authority to do so, and had 
left the whole matter in that gentleman's hands. There- 
upon, after another long interview (March 30), Mr. 
Hoxie was asked, on behalf of Mr. Powderiy, whether he 
would meet the General Board of the Knights or a com- 
mittee of employees from the Knights. He answered 
guardedly that he was willing to meet a committee of em- 
ployees who were actually at work; and the General 
Board, apparently thinking this satisfactory, once more 
ordered the Knights to return to work. 

But the Board had little control over the members of 
Assembly 101. Neither its first nor its second order to 
resume work was obeyed. The men waited for instruc- 
tions from their local leader. Irons.* The only offers to 
return to work came from committees of the striking 
Knights, who stipulated that all strikers should be taken 
back, except such as might be proved guilty of violence. 
They ignored the men whom the company had in the 
meanwhile engaged. They considered themselves as still 
in its employ, or at least as having a right to employ- 
ment; and, notwithstanding the explicit terms of Mr. 
Hoxie's promise, they complained that he had violated it, 
because he refused to consider them as ^^ actually at 
work." 

Between the firmness of the company and the unrelent- 
ing temper of the strikers, the General Board was at a 
loss. Its members would probably have been willing to 
accept almost any terms that involved a recognition of 
their order. But a recognition Mr. Hoxie was deter- 
mined not to yield, and the other officers of the company 
took their cue from him. Mr. Hoxie's fimmess on this 

*An engineer at De Soto testified before the Con grooa ional Committee 
that, after Powderly's first order to resume work, he began to repair a dis- 
abled engine. He was told to desist. He answered that Powderiy had called 
the strike off. The men replied, ** Never mind Powderiy: Martin Irons 
hasn't called it off.'* Globe-Bemocrat, May 12. There was a Powdedy £m- 
tion and an Irons faction in District Assembly 101 : the former was strong, bat 
the latter had control of the machinery and the offices. 



THE aOUTH-WESTEBN STRIKE 215 

point was not due to an unwillingness to deal with labor 
organizations in general. Indeed, in the course of this 
very strike, he negotiated with several of them ; * but he 
would have nothing more to do with the Knights. The 
General Board, finding it impossible to extract a recogni- 
tion, in the end fell in with the attitude of District As- 
sembly 101, and tried to force a victory. Perhaps the 
more reckless spirits got the upper hand. Perhaps the 
Board soberly concluded that the best policy was to fight 
for the principle that their order must be dealt with, right 
or wrong. At all events, their action became feverishly 
aggressive after the close of the unsuccessful negotiations. 
They issued a manifesto alleging that Mr. Hoxie had 
broken his agreement "for the purpose of stock-jobbing 
speculation." A letter signed by Mr. Powderly and ad- 
dressed to Mr. Gould was published, vaguely threatening 
that gentleman with ruin, if he did not put an end to the 
strike. The letter was in marked contrast to the rather 
moderate utterances which had hitherto come from Mr. 
Powderly. The Knights all over the country were called 
on for contributions to aid the strikers ; and considerable 
sums seem to have been raised, and distributed in rather 
loose fashion. 

But the battle was hopelessly lost. By the middle of 
April, traffic had been completely resumed on all lines of 
the Missouri Pacific. The active strikers of Assembly 
101 were no more than a band of hunted outlaws, able to 
make themselves felt only because of the defenceless con- 
dition of a long line of railroad. The General Board was 
glad when a pretext was given for retiring from the field. 
The House of Representatives at Washington had ap- 
pointed a committee to investigate the strike. The com- 

* For example, with the Fizemen's Brotheihood. The MinMari Pacific 
diflohaiged in the oonzse of the strike twenty-thiee firemen for abetting the 
striken. The chief of the Brotherhood conferred with Mr. Hoxie, and a com- 
mittee was i^pointed to inyestigate the action of the diBohar8:ed men. Most 
of diem were taken back. 



216 QUABTEBLT JOURNAL OF ECONOMICS 

mittee, soon after arriving in St. Louis, addressed to the 
General Board a request to put an end to the strike. 
Accordingly, they issued an order declaring it at an end. 
Thereby was brought to a formal close the most remark- 
able strike the country has seen. Not a concession had 
been made by the road. The Knights had suffered an 
overwhelming defeat. 

Few of the strikers — not more than one-fifth — were 
taken back on the Missouri Pacific. The road refused to 
have any Benights of Labor in its service, and all who 
came back had to leave the order. No man known to 
have committed acts of violence was re-employed. The 
result caused no great hardship for the immarried, roving 
men: they scattered, and found work elsewhere. But 
many had homes and families, and went through great 
distress. At the instance of the road, criminal proceed- 
ings were instituted against those who had been guilty of 
imlawful acts. Few convictions, however, were secured. 
Nor, indeed, were they needed to bring home to the rank 
and file of the strikers the completeness of their failure. 
The collapse of the strike and the distress that followed 
it were a sufficient retribution. 

As the preceding narrative will have shown, the strike 
was not undertaken for the redress of grievances. I am 
not prepared to say that the strikers had, in fact, no good 
grounds for complaint. But many of their alleged griev- 
ances imdoubtedly rested on unreasonable demands. 
Again, their leaders stated that the acts of abuse or 
injustice of which they complained were committed by 
subordinate officers. Yet they admitted that they had 
failed to present grievances to the higher officers for some 
time before the strike, and that these officers had given 
fair attention to their earlier demands.* For the gen- 

* It is fit to say that my brief interoonrae vith Mr. Hozie, whom the 
Knights held in particnlar avenion, left the impression that he was not only 



THE SOUTH-WESTERN STRIKE 217 

eral lesson of the strike, however, it is not material 
whether or not the railroad company had done well or ill 
by its employees. The strike was a struggle for power. 
The Knights of Labor who were concerned in the strike 
thought that they were irresistible. They had " downed 
Jay Gould " once, and they were going to do it again.* 
In order to win their victory, they were determined to 
choke the railroad company, and, if need were, the com- 
munity also. Traffic was to be suspended imtil their 
demands should be granted ; and, to prevent traffic, law 
and order were systematically defied. No community 
can endure such tyranny. In this case, the unpopularity 
that attaches to the name of Grould served at first to 
bring to the strikers a support in public opinion; but 
their mismanagement soon turned the public against 
them. Indeed, their leadership was bad. They chose 
a poor point of attack in the discharge of Hall on the 
Texas and Pacific. They were extraordinarily reckless in 
their defiance of law. Their General Board neither sup- 
ported them effectively nor saved the credit of the order 
by entirely repudiating them.f But, while with shrewder 

an able man, but a straightforward and humane one, imbued vith a strict 
sense of duty and discipline, but disposed to just treatment of his subordinates. 

Irons testified that the superintendent of the Missouri Pacific proper was 
** always a gentleman,'' and **did eyerything in his power to rectify wrongs 
done to the men." To the general superintendent he had presented a griey- 
ance but once, and had then got what he wanted. He thought this officer also 
** would go as far as he could and be as fair as he could with his employees.'* 
Mr. litohman, in his report on the strike, says that the testimony before the 
Congressional Committee ** showed conclusiyely the existence of yalid reasons 
for complaint, and a system of petty tyranny on the part of railroad under> 
bosses, which was beyond the power of human forbearance patiently to 
endure." So much of the testimony as I haye seen, while it indicated some 
yalid grounds for complaint, deyeloped no ** system " of petty tyranny. 

*One of the Knights, named Cooper, a member of a local grieyanoe oom> 
mittee, testified before the Congressional Committee that, after an interyiew 
with one of the railroad officers about a grieyanoe, he was asked by the latter 
what report he should make. ** Well," said he, ** I am going to report that on 
general principles we can down you ; but, on figures, yon haye got the adyan- 
tage of us." 

t It must not be supposed, howeyer, that the strike was the work merely 
of the leaders. Mr. litohman, in his report, says: **It is etmj enongh now 



218 QUABTEBLT JOURNAL OF ECONOMICS 

management they might have made a better fight, the 
attempt to dictate whether or not so vital an industrial 
function as the railway traffic of modem times should be 
carried on at all, must eventually have been defeated. 

The South-western strike was not an isolated event. 
The same conditions prevailed on many other railroads. 
If the men had won a victory on the Missouri Pacific, a 
similar effort would soon have been made elsewhere ;^and, 
perhaps after a severer struggle, would doubtless have met 
with defeat. On the Denver and Rio Grande road there 
was in 1885 a strike similar in many ways to that in 
the South-west. The Missouri Pacific strike in the 
spring of 1886 was accompanied by a strike on the Wa- 
bash, and followed by another on that road in midsum- 
mer. The officers of the Union Pacific have been beset 
for several years with demands, complaints, grievances, 
threats of strikes, from Knights of Labor among their 
workmen. The strikes of the coal-miners of the Union 
Pacific, which led eventually to the massacre of Chinese 
miners at Rock Springs, were part of the struggle of the 
Knights against the Union Pacific. A determined trial 
of streng^ on that road came in May, 1886, when the 
brakemen struck, and tried to stop all freight traffic. But 
the road concentrated a large force of armed guards at 
Cheyenne, the head-quarters of the outbreak ; and its vig- 

to say that the strike was ill-timed, ill-adyised, and badly managed. It is 
easy enough now to make Martin Irons a scape-goat, and say he ordered the 
strike vithont authority. But the troth ia that eyery Local in the Assembly 
voted to gire the District Board power to demand the adjustment of grrier- 
anoes complained of and the reinstatement of Brother Hall.^' On the other 
hand, the Missoori Labor Commissioner testified to the Congressional Com- 
mittee that ** the more oonserrative element in the order was not in sympathy 
with the strike,'* and thought it ** causeless and mistaken'* ; and that, when 
Powderly issued his first order to return to work, ** a great many men went 
back, but in many instances were prerented, threatened with violence, and 
quit again.*' 

The surly and exasperating testimony given by Martin Irons before the 
Congressional Committee gives ample proof of his inci^acity as a leader. 
In lAppinccd's Magazine for June, 1886, is a braggart autobiogn^hio skateh 
signed by him. 



THE SOUTH-WESTERN STRIKE 219 

orous measures, enforced by the recent lessons of the 
South-west, led to a speedy rout of the strikers.* At 
the very time of the South-western struggle there were 
strikes of switchmen at Chicago and at various points in 
Missouri. In Missouri, the object was to get an advance 
of wages ; and, after traffic had been stopped for a few 
days, the advance was secured. In Chicago, the switch- 
men's strike took place on the Lake Shore road, and was 
directed against the employ of non-union switchmen. It 
led to a long and bitter struggle, in which the beating of 
^' scabs," derailing of trains, and defiance of law took place 
in much the same way, though not on so large a scale, as 
in the great trial of strength on the Missouri Pacific. 

In all these cases, the essential cause of trouble was the 
same, — the instinct for power. There may have been 
grievances. Sometimes, the demands made were in them- 
selves unreasonable, such as those for the discharge of 
competent men or the appointment of incompetent &vor- 
ites. Sometimes, they were reasonable enough. But the 
true point at issue in almost all these struggles was the 
control which workmen should have in the management 
of the roads, and the threatened or actual means of en- 
forcing that control was by annihilation of traffic. The 
men were endeavoring to secure a share in management 
beyond that for which they were qualified. The slow 
and steady movement of society has evolved something 
like a military organization. The rank and file are as- 
signed their duties and their places by the captains of 
industry; and a considerable change from this state of 
things is not to be looked for in the immediate future. 
The struggle in the South-west was the result of an 
attempt to shift the centre of power and responsibility. 
It was watched keenly by the railroad workmen, — in- 

* It should be said that the Brotheihood of Railroad Brakemen promptly 
zepndiated the action of the brakemen who struck on the Union Paeifio, and 
ezpeUed from its ranks twenty-six membeis and suspended thirty othen for 
their action in this strike. 



220 QUARTERLY JOURNAL OF ECONOMICS 

deed, by all classes of workmen, throughout the country ; 
and its signal defeat has sobered the ambitious spirits 
among them. We have hardly seen the last of these dis- 
turbances, but another such upheaval is not likely to 
come soon. 

The history of labor organizations in the present cen- 
tury indicates that they will probably continue to grow in 
numbers and strength, and to secure a larger and larger 
share of attention in the management of industrial opera- 
tions. It is not impossible, for instance, that some such 
right to employment as the Knights of Labor demanded 
in the South-western strike may obtain recognition ; that 
arbitrary discharges may be prevented by some method of 
check and investigation on the part of the workmen's 
organizations. But their attainment of such a jurisdiction 
and their general advance depend on the care, the intelli- 
gence, the reasonableness with which they are managed ; 
above all, on their capacity to select fit and capable 
leaders. In the South-western strike, they were led by 
ignorant and incapable men, not disposed to apply with 
fairness that control over the employment of workmen 
which they demanded, not. fit to hold such a power over 
the roads and over the community as they were trying to 
exercise. Their failure was inevitable. Perhaps such an 
experience is a necessary phase. The trade-unions of 
England reached their present condition of comparative 
firmness and consolidation only after years of hard expe- 
rience. The locomotive engineers in this country, in the 
early stages of their organization, showed the disposition 
to enforce their demands at whatever cost to the commu- 
nity. They were then defeated * ; and they have gradu- 
ally sobered down to an attitude of moderation, and at 
the same time have attained a settled place and power. 

*See the report of the MassaohnsettB Railroad Commisrioneis on the 
engineeis^ strike on the Boston and Maine road in 1877, McuscuJiusetU Leffu- 
lative Documents, 1877, House No, 102. See also the Report of the Massachn- 
setts Commissioners for 1877, on the railroad strikes of that time, pp. 40-65. 



THE SOUTH-WESTERN STBIKE 221 

Something must be said, in conclusion, on the lessons 
of the strike for the railroads. Of the policy of the Mis- 
souri Pacific and of other roads toward their workmen, it 
can at the least be said that it has not prevented hatred and 
hostility, nor interposed any check to an uprising against 
the employers. On most of the roads of the country, the 
switchmen, yardmen, and brakemen pick up a job here 
and there, rove from road to road, and rarely form part 
of the permanent force of any one. The men take their 
pay, give their services, and care no more for their em- 
ployer than for the track on which they ride. Much the 
same is true of shop-mechanics and other workmen. All 
are held to a rigid discipline. The nature of the service 
demands that they should be more or less like machines, 
and little is done to show that they are considered any- 
thing more than machines. No attempt is made to bind 
the rank and file to the roads by ties of sympathy or 
advantage. Whatever may have* been the objects of the 
leaders of the E^nights in demanding a recognition of 
their order, the mass of the strikers sympathized with that 
demand as for a recognition of their manhood. 

No doubt, in a half-settled country like that traversed 
by the Missouri Pacific, a hand-to-mouth policy is in large 
part inevitable. The industry of the region is growing 
and shifting, the population is more or less migratory, 
the roads are fighting for business and territory. But the 
stage of settlement of living from day to day is approach- 
ing its close. The time certainly has come in the older 
parts of the country, — it is rapidly coming everywhere, — 
when a systematic and stable organization of industry is 
possible. The events of the last few years have drawn 
the attention of railroad managers, as well as that of other 
large employers, to the need of a more stable, soimd, and 
humane policy towards their workmen. Schemes for bet- 
tering the lot of railroad employees and for binding it 
more closely to the welfare of the roads are cropping out. 



222 



QUARTERLY JOUBKAL OF ECONOMICS 



The Baltimore and Ohio road set in operation as early a 
1882 an elaborate pliin for peosioning its employees, in 
suring their lives, relieving them when sick, and helpinj 
their education.* The Pennsylvania road established u 
1885 a tentative scheme of the same kind* Other road 
have it in mind to try similar experiments. The employeee 
in their present temper, regard such plans ivith suspicion 
and their success will depend largely on the temper ii 
which they are carried out, and time must test whethe 
they will bring more friendly relations, A disastrou 
experience like that in the South-west may pave the wa; 
both to better reason and sounder progress in the labo 
organizations, and to a more liberal and far^ighted poUe; 
on the part of great employers. 

F, W. Taussig 



* See the pamphlet by W, T, Bamard, The^Rdation qf Railwatf Mamffti 
and Emploifee^, Baltimore ^ 1S8^* 



NOTES AND MEMORANDA. 



Thb AthencBttm annoances that Thorold Rogers has in hand 
an important contribution to the early history of the Bank of 
England, dealing with the first nine years after the inoorpora* 
tion of the bank. Mach interesting information is said to be 
drawn by the writer from original sources, and we may reason- 
ably expect to obtain from his investigations a clear undeiv 
standing of a period which no historian has dealt with in a 
satisfactory manner. 

Thb publication of the Dictionnaire dea Finances^ begun in 
1883, under the direction of M. L6on Say, by Messrs. Foyot 
and Lanjalley, both of the French ministry of finance, has 
been resumed. Parts five and six appeared in November, and 
we may now hope for the completion of this elaborate and 
authoritative work. 

It is announced that the Clarendon Press is now printing 
the fifth and sixth volumes of the SUtory of AgricuUttre and 
Prices by Thorold Rogers, this instalment covering the years 
1583-1702. 

Thb courageous proposition made by the Secretary of the 
Treasury in his annual report, to pay off the greenbacks with 
surplus revenue, is a return to a policy which was familiar ten 
years ago, but has since been forgotten. Mr. Bristow, in 1875, 
understood the resumption act to provide for " the final re- 
demption and removal from the currency of the country of 
the legal-tender notes as fast as they shall be presented for 
redemption.'' Mr. Morrill, in 1876, understood the act to pro- 
vide ^ for the redemption of the United States notes, and for 
the issue of national bank-notes in lieu thereof," creating '^ a 
monetary system combined of coin and national bank-not^ 



224 QUARTEBLT JOURNAL OF ECONOMIOe 

redeemable in coin at the demand of the holder, in harmony 
with the Constitution and the traditional policy of the Ameri- 
can people." The final disappearance of the United States 
notes was understood by both of these secretaries, and prob- 
ably by the general public, to be the necessary and desirable 
result of redemption under the act of 1875. 

This sound position was abandoned, and the way was opened 
for making the issue of greenbacks a permanent constituent 
of the currency, when Mr. Sherman, in his report of 1877, 
expressed the opinion that under the act "notes, when re- 
deemed after the 1st of January, 1879, if the amount out- 
standing is not in excess of $300,000,000, may be reissued as 
the exigencies of the public service may require." With this 
Opinion governing in the Treasury, it was an easy thing for 
Congress to go one step farther, and say that not only the 
$800,000,000, but all that might happen to be outstanding, 
should be reissuable from May 81, 1878, by the act of that 
date, — giving us our present fixed issue of $846,681,016. 
From the passage of that momentous act, carried through 
both Houses without debate, no secretary has ventured to 
urge upon Congress the complete removal of the greenbacks, 
until Mr. Manning in his report of 1885, and still more em- 
phatically in that of 1886, called upon Congress to redeem its 
pledges and pay off the unfunded debt. 



The jubilee year of Queen Victoria's reign is to be marked 
by a publication which promises to have a good deal of 
economic interest. This is The Meign of Queen Victoria: 
A Survey of Fifty Years of Progress^ to be edited by Mr. 
Humphry Ward, and issued early in the year by Smith, Elder 
A Co. The work is to be a collection of monographs, among 
which are to be : — 

National Finances, by Leonard Courtney. 

Growth and Distribution of Wealth, by Robert Giffen. 

Industrial Organization, by A. J. Mundella. 

Agriculture, by Sir James Caird. 

The Iron Trade, by Sir Lowthian BelL 

The Cotton Trade. by J. Slagg. 



• NOTES AND MEMORANDA 225 

Thb extent to which the English gold currency has suffered 
in weight was measured in July last by weighing in sev- 
eral of the London banks a large amount of coin, in parcels 
of one hundred sovereigns or half-sovereigns. The leading 
results were these: — 

100 100 Half- 

SovBreigus* soToroisiit* 

Standard weight, 12,327.45 gra. 6,168.72 gn. 

Legal allowed weight, 12,250.00 6,112.50 

Actual average weight, .... 12,248.00 6,063.90 

Greatest observed weight, . . . 12,257.00 6,074.00 

Least observed weight, 12,232.00 6,047.00 

The sovereigns then, in parcels of one hundred, range from 
.9923 — to .9943 — of the full standard weight, and half-sov- 
ereigns from .9810 -|- to .9854 -|-. A large part of the sover- 
eigns and every parcel of half-sovereigns were so far below the 
standard as to be no longer a legal tender. 

This evil appears to have advanced rapidly of late ; but its 
existence has been observed for years, and the necessity of 
applying some remedy has long been recognized. But we 
believe that no Chancellor of 'the Exchequer has had the cour- 
age to propose a direct appropriation of money for the refor- 
mation of the gold coinage. The scheme of Mr. Childers for 
meeting the cost of reform by debasing the half-sovereign, 
and making it legally a token only, was a fair enough illustra- 
tion of the disposition of English statesmen to shirk the cost 
of a real cure. 

If the English government should at last deal with this sub- 
ject by calling in the present gold circulation, it is hardly 
probable that the half-sovereign would be issued again. The 
Scononiiatt indeed, proposes its withdrawal and the substitu- 
tion of subsidiary silver in its place, the profit on such an issue 
being used to establish a fund with which to keep the issue 
of sovereigns in good condition hereafter. It will be observed 
that in France the gold five-franc pieces were withdrawn from 
circulation during the last year, and that the Bank of France 
was understood to retain all ten-franc pieces received, with a 
.view, as was supposed, to their ultimate withdrawal by the 
French Mint. Both in France and in England, the chance of 
making a small addition to the market for silver will be one 



226 QUABTERLT JOURNAL OF ECONOMICS 

of the considerations in favor of discontinuing the nse of a 
gold coin which happens to have special inconveniences in use. 



Thb September number of the Giomale degU JSconomisti 
contains an article by Signer Rosmini, inspector-general of the 
treasury, on the measure by which the Italian government is 
seeking to counteract some of the evil effects of the public lot- 
tery, from which a discreditable revenue is drawn by the State. 
The measure referred to is an Act passed in 1880, under the 
lead of Ms^liani, providing that prizes of less than one thou- 
sand francs, on request of the payee, shall be converted into 
deposits in the postal savings bank, drawing interest at three 
and one-half per cent, from the date of application. The pro- 
vision was applied to the smaller prizes, because it was found 
that the increase in the number of tickets sold was due to the 
greater number of small ventures made by the poorer class of 
people, showing that the evil is spreading where saving most 
needs encouragement. 

The Italian statesmen appear to have entertained moderate 
hopes as to the success of this Wld remedy. They trusted 
that the sight of a deposit book where it had been unknown 
previously might do something, and that here and there the 
inducement to future economy might begin to compete with 
the passion for gambling. The results, according to Signer 
Bosmini, have shown the wisdom of indulging in few illusions, 
as may be seen from the figures : — 

Prlies oo n fer ta d into depotlts. 





Prlies not 


orer 1,000 fr. 




No. 


Amount. 


1881 [half] 


960,621 


19,794,596 


1882. 


1,703,201 


86,248,006 


1888. 


1,608,849 


86,174,487 


1884. 


1,761,891 


86,417,237 


1885. 


1,801,826 


88,145,074 



Ko. 


Amount. 


76 


9,246 


228 


28,847 


824 


47,226 


440 


74,906 


768 


147,671 



Signer Rosmini points out, however, that only one-tenth of 
the one thousand seven hundred and thirty lottery offices are 
yet organized so as to transact the business of conversion 
promptly, that thorough publicity has not been given to 
the offer of conversion, and that the active influence of the 
officials is yet to be stimulated ; and he has strong hope, there- 



NOTES AND MEMORANDA 227 

fore, of seeing the increase from a small beginning, shown in 
the above table, lead to important results. 

Although the lottery appears to be a permanent resource of 
the Italian treasury, it is to be noted that it is recognized 
legally as only a provisional arrangement. The Act of 1863 
first forbids public lotteries in general terms, and then declares 
that ^^ the gitwco dd lotto is provisionally maintained for the 
benefit of the State '' ; and the same phrase is used in an Act of 
1881. The existence of the lottery has been deplored, and it 
has been treated as an immoral resource by one statesman after 
another; but, in the poverty of Italy, no minister has yet 
found himself strong enough financially to sacrifice the thirty 
million francs net which remain after the payment of ex- 
penses and of about forty millions in prizes. 

A French translation of the Act of 1880, to which Signer 
Rosmini refers, and of some other regulations on the same 
subject, may be found in the Annvaire de JLigidation (7om- 
parie for 1880, p. 820. 



MARSHALL'S THEORY OF VALUE AND DISTRIBUTION. 

Now that Mr. Marshall fills the chair at Cambridge vacated 
by the death of Professor Fawcett, he may properly be consid- 
ered, for that and other reasons, the foremost economist of 
the day in England. It is understood that, while still living 
at Bristol, he had been making special studies in the subject 
of value. In his volume entitled Economics of Industry^ he 
has laid down a fundamental law of value, in the nature of an 
improvement on the work of Mr. Caimes. It is, therefore, 
worth considering whether Mr. Marshall has really advanced 
our knowledge of the principles regulating value, or not. It 
seems quite possible that he has not. 

After defining value in exchange in the usual way, he gives 
to the term, cost of production, the meaning contended for by 
Mr. Caimes, and defines it as consisting of ^' the efforts and 
abstinences required for producing " a commodity (p. 78). In 
discussing the value of commodities capable of unlimited in- 
crease, however, he disagrees with Mr. Caimes, and denies to 
cost of production the character of a regulator of value where 



^ • 



228 



QUAMTMBLT JOURNAL OF ECONOMICS 



rom petition \b free* Instead, he mis up a new conceptloi 
termed '' expensefl of production," by the side of cost of pr< 
ductioo. By way of illustration, he points out that a ca 
pen tor in making a box undergoes certain ^aorifiees, and \ 
the following words explaine what is meant by expenses < 
production: — 

The carpenter, ho were r^ in *!ecldiiig whether to make tlie box or m 
would not care to examine all these efforts and sacrifices : he would d 
cide in a muck easier way. lie would calculate what it is proposed i 
call its expenses of production, lie would, aa we have seen, want i 
know what prices thf^ yarious efforts and sacriticcs ia question wou 
comniaud in the oi^ia market; he would want to know what price 1 
would have to pay for hh material, what wagie*s he could ohtaln for h 
own labor, what was the rate of interest at whieh lie eould borrow su( 
capital as he wanted, and so on. The^e various sums of money, wh( 
taken together^ may be called the expenges qf productii^n of the bo 
(p. 72.) 

The value of a commodity is then declared to be regulate' 
not by cost of production, but by expenses of production, i 
may be seen in the iiual summing up of the law of normal valm 

The normal value of a thing in any market, or that value which won 
on the average be brought about by tlje undiaturbed action of free coi 
petition among Its prodm\*ra, is eqaal to ita expenses of producti< 
there. ^Vh en ever the value is below thl« level, forces are brought in 
play wbich tend to raise it ; whenever it Is above thit* level, forces a 
brought into play which tend to lower it. The value of a commodity 
in equilibrium and has im tendency either to riae or to fall M'hen t 
amoimt produced can just be sold at a price equal to its expeusea of pi 
d action, (p. 77.) 

The error in these statements seems to me to be serio^ 
and fundatnentJil ; so much so, in fact, that a doubt is raie< 
whether tlie author's meaning hris been correctly understoo 
It in certainly a serious error to define value in terms of valu 
but this is what Mr. Marshall lias seemingly done, with tl 
consequence of am\ing, in his law of normal value, at not 
Ing more than identical statements. In the illustration of t! 
i-arpenter and his box, it is stated that expenses of prodi 
tion are made up of the prices paid for the various efifoi 
and sacrifices involved in production. Now, of course, pri 
is itself only an expression of value ; but in so fundament 



I 





NOTES AND MEMOBANDA 229 

a law as that of normal value he goes on to say that normal 
value depends upon the prices of certain things, — the prices 
paid for the sacrifices of laborer and capitalist undergone in 
the production. 

Mr. Marshall, however, finds that " this law is not complete^ 
because it takes no account of the fact that the expenses of 
production are not fixed, but depend upon the amount pro- 
diicedP (p. 78.) One hopes that the author will now extri- 
cate himself from the difficulty ; but he completes the law by 
the following statement : — 

An increase of demand increases the amount produced, and this alters 
the expenses of production; so that value depends partly on demand, 
because normal value is equal to normal exjienses of production, and de- 
mand is one of the determining causes of these expenses. The law of 
normal value requires then to be supplemented by the statement that: — 

The normal supply of a commodity is such that its normal expenses 
of production equal the price which will call forth a demand for this 
amount ; and the price so determined is the normal price, (p. 03.) 

The context seems to show that, in the meaning of the 
author, demand has an effect on expenses of production in 
some such way, for example, as would result from large pro- 
duction. When large quantities of commodities are produced 
under one management, the expenses of production may fall. 
But, of course, this modification does not touch the real dif- 
ficulty in Mr. Marshall's statement of normal value. 

If value depends upon expenses of production, and if ex- 
penses of production depend upon the " prices of the various 
efforts and sacrifices," the question naturally arises in the mind, 
What governs the prices to be paid for these efforts and sac- 
rifices ? The pajrment, for instance, of one effort is the wages 
of labor; and this implies some theory as to what regulates 
wages, or a knowledge of the principles of distribution. But, 
in Mr. Marshall's exposition, the subject of value is treated 
before that of distribution. So that, when studying value^ 
there are no means yet offered of ascertaining the prices to 
be paid for the sacrifices of production. 

Still, passing over this defect in the order of the exposition, 
the difficulty in regard to the law of normal value becomes 
even more formidable when we take hold of the author's 



280 QUABTEBLT JOURNAL OF ECONOMICS 

theory of distribution. The problem of distribution is cleariy 
stated as follows : — 

In the first book, we have inquired into the production of wealth, 
and have seen how the real net annual income of the country is deter- 
mined. We have seen how that share of it which the landlord can claim 
as rent is fixed by definite economic laws; and, as the share which the 
State assumes to itself as taxes depends on causes which cannot be 
examined here, we must take it for granted. We may then regard the 
amount which remains, after deducting rent and taxes from the net 
annual income of the country, as a given fund, and call it the Wages- 
and-Profit Fund. The problem of distribution^ with which we shall be 
chiefiy occupied during the rest of the present volume, consists of an 
inquiry into the way in which this fund is divided up. (p. 05.) 

Omitting all discussion now as to the respeotiye shares 
assigned to labor and capital from this fund, it will be suffi- 
cient to call attention to the very elementary truth that this 
wages-and-profit fund is, of course, made up of wealth, or 
articles having value ; and that the amount of the fund changes 
accordingly as the articles of which it is composed rise or fall 
in value. The demand for the products of any indastry^ or 
group of industries, for example, may become stronger : the 
value of these products may be accordingly raised, and so the 
wages-and-profit fund may be larger. This reasoning is in 
accordance with Mr. Marshall's general teaching, and with the 
facts of daily experience. When, for instance, an extension 
of railway building causes a stronger demand for iron, the 
value, or price, of iron, rises, and wages and profits in that 
industry rise; for, inasmuch as the products bear a higher 
value, the wages^and-profit fund will be larger. Wages and 
profits, then, must depend for their amounts upon the value 
of the wages-and-profits fund. 

Here, however, we meet with a serious difficulty. In Mr. 
Marshall's theory, value conforms to expenses of production ; 
but, on his own showing, expenses of production are ultimately 
resolvable into wages and profits.* What determines the 

* ** We have seen that the expenses of prodnotioii of a commodity may be 
reckoned in such a way that rent does not enter into them. The remaining 
expenses may be classed as wages, profits, the expense of raw material, and 
other oironlating capital, the wear and tear of fixed capital, and taxes. . . . Bat 
all these may, as a role, be classed as wages and profits." (B. II., chap, 
vi., p. 94.) 



NOTES AND MEMORANDA 231 

value of the wages-and-profit fund, according to the author? 
Evidently, it is determined according to his law of normal 
value by the expenses of production, or, in other words, by 
wages and profits. We are logically led, therefore, to the 
proposition that the value of the " Wages-and-Profit Fund " 
depends upon the amounts paid as wages and profits ! The 
obvious identical proposition is that the value of the fund to 
be divided conforms to the sum of the parts into which it is 
divided. 

The cardinal difficulty, one must believe, lies in the attempt 
to set up the expenses of production as a regulator of value. 
Cost of production the author declares to be unfit to serve as 
a regulator of value. When it is stated by other writers that 
"value tends to equal cost of production," Mr. Marshall says : 

This, of course, does not mean that the value of a thing tends to 
equal what is called, in this book, its cost of production ; t.e., the efforts 
and abstinences that have been required for making it. MThat is meant 
is that the value of the thing tends to equal the sum of those values 
which measure the efforts and abstinences required for making it, — that 
is, cost of production is used to denote what we have expressed by the 
term " expenses of production " ; for an exchange value, or price, 
though it may be equal to a set of excliange values or prices, cannot be 
equal to a set of things unlike in kind to it There cannot be any direct 
comparison between one set of efforts and abstinences and another. 
We cannot subtract the labor of a carpenter in making a box from the 
labor of a watchmaker in making a watch, (p. 97.) 

This quotation fully develops the position of the author in 
his attempt to dispense with cost of production as a regulator 
of value; and it also shows distinctly enough a misunderstand- 
ing of the grounds on which it has ever been proposed to 
assert that value depends upon cost of production. Where 
competition is free^ two articles, in whose production the 
efforts and sacrifices are equal, will exchange for each other ; 
and, other things being the same, the efforts and sacrifices will 
be rewarded by the same payments. So that, where the costs 
of production are the same, it is also true that the expenses 
of production, or the sums paid for the sacrifices, will be 
equal And, in such a case, it is found to be true that the 
conmiodities might exchange for each other in proportion to 



282 QUABTEBLT JOUBNAL OF ECONOMICS 

their expenses of production. But, where competition is not 
free^ as in the example of the carpenter and the watchmaker, 
exchange value is not governed by cost of production, but, 
as Mr. Caimes has clearly shown, by reciprocal demand. 
Under these conditions, if the value of one article relatively 
to another is out of proportion to the relative sacrifices incurred 
in their production, it may happen that the sacrifices in pro- 
ducing the one article will be more highly rewarded than 
the sacrifices in producing the other. If this be true, wages 
and profits, or the "expenses of production,'' are high, be- 
cause of the influence of reciprbcal demand. 

J. Laubbncb Lauqhlik. 



SOME OBJECTIONS TO PROFIT-SHARING. 

[The following pages are an extract from a Dissertation for which the 
author received a Bowdoin Prise in Harvard College in 1886. The au- 
thor's consent to the present publication was asked, in view of the fttct 
that his essay represents a side of the question as to Profit-sharing not 
commonly set before the public] 

The highest claims have been advanced by the advocates of 
industrial partnership for its possibilities in effecting a solu- 
tion of the labor problem. The capitalist, it is said, may 
justly expect to see introduced into his relations with his 
work people stability and peace, a strong corporate spirit, 
and a feeling of solidarity of interests which shall secure real 
co-operation from them instead of perfunctory service, and 
put an end to that class feeling which bands workmen 
together as in a league against their employers. The work- 
man, too, will receive, besides his increased share, indirect 
benefits of no little importance. The extra profit or bonua 
makes a valuable incentive to saving, and encourages a more 
intelligent spirit of toil and a better appreciation of the econ- 
omic conditions surrounding business and industrial life. In 
short, through the beneficent workings of the system, the 
demands of labor will be met, and the disputes between labor 
and capital permanently ended. The influence of this change 
in the industrial conditions is expected to be so great as U> 



NOTES AND MEMORANDA 238 

effect a moral regeneration among the laboring classes, to stir 
into activity all ranks of industrial life, and to quicken even 
the lowest of the world's workers with the fire of ambition 
from new opportunities for material advancement. A system 
which promises such momentous results, and which proposes 
so important a change in the relations between capital and 
labor, is worthy of the most careful examination. 

In the first place, it is to be observed that the discus- 
sion by the advocates of profit-sharing is based, for the most 
part, upon the cases in which the scheme has been adopted 
in Europe and in this country. The methods of induction 
have been used almost altogether. But, in the study of any 
such important rearrangement of industrial relations as is con- 
templated by this system, an extremely full collection of data 
is necessary, in order to arrive at any conclusive result from 
induction. There are, at present, few such data at hand. All 
the instances ever collated, which are not more than one 
hundred in number, form a very small point in the great 
world of business. They can have but little weight in deter- 
mining the value of industrial partnerships as a prevalent and 
permanent industrial arrangement. So many and various are 
the causes contributing to the success or failure of a year's 
business with any individual firm, that a very large number of 
cases must be taken from which to draw an average that 
would eliminate or offset against each other all accidental cir- 
cumstances. Then, too, the actual application of the system 
of profit-sharing has been so limited that the cases, from their 
very novelty, have often been surrounded by a set of special 
circumstances. To allow the full import of industrial partner- 
ship to be seen, these special and accidental circumstances 
must be eliminated by averaging a great number of cases. 

Let us^ then, see what theoretical grounds can be found 
to base the discussion upon, since induction at present must 
prove inconclusive. And here it should be understood that 
industrial partnerships must be regarded in the investigation 
as the permanent and prevalent industrial system of the 
country, and all arguments should recognize or be based upon 
this assumption. The present exceptional and experimental 
character of the system must be left out of sight as far as 



234 QUABTEBLT JOUBNAL OF ECONOMICS 

possible, and favorable or onfavorable conditions due to this 
cause eliminated from the discussion. 

What is the nature of wages? A capitalist and some 
laborers enter into an agreement for the purposes of produc- 
tion. Of the product, the capitalist is entitled to retain 
a certain share, and the laborers a certain share. Owing to 
the peculiar advantages which the possession of capital gives, 
the capitalist can wait till the product is sold before he 
claims his share ; and, also, he can relieve the necessities of the 
laborers, who cannot wait, by paying them a certain fixed 
sum, at regular intervals, out of his capital, for which he 
expects to be reimbursed by the subsequent sale of the prod- 
uct. In consideration of this regular payment in advance, 
and the uncertainty which must always hang over the capital- 
ist as to whether he shall be fully recouped at last, and also 
to indemnify him for his loss of interest, the laborers agree to 
take a smaller amount than they would otherwise be justly 
entitled to; t.e^ if they took their share on the same terras 
and uncertainties as the capitalist. In other words, wages 
are a commtUation of the laborer's share of the product. 
The deduction from his theoretic share is a premium which 
he pays for the insurance of that share. But it is now 
demanded that the laborer shall receive not only his com- 
muted fixed advanced share, but a fluctuating deferred share 
as well, if the product should happen to furnish the capitalist 
with an unusually large return. The capitalist is asked to 
give up some of that premium which makes it possible for 
him to pay a regular stipend to the laborers. The laborers 
are to be paid twice over, — are to receive their insured part 
of the product and be presented with the premium besides. 
The arrangement is an obviously unfair one. 

This objection implies an uncertainty in the rate of profits ; 
and here is an important consideration, which cannot be over- 
looked. The profits of nearly every form of business, imder 
the stress of competition and the causes which produce fluctu- 
ations in the business world, are uncertain. The ^average 
rate of profits," of which the economists speak, must not be 
taken too literally. The business man reckons his profits at 
so much per year, if he takes a series of years together; but 



NOTES AND MEMORANDA 235 

there will come times, with the best and most oonservative 
business heads, when profits, owing to various caases which 
may be entirely beyond the control or the foresight of the 
indiyidoal, may quite disappear, or even give place to loss. 
Unforeseen rumors of war abroad, a season of cholera, unex- 
pected action concerning tariff, by foreign governments or at 
home, a sudden disorder of the money market, — any one of 
a dozen causes may influence the result of a year's business 
for good or for bad, and that entirely without fault of the 
controlling head of the firm. But suppose that, in previous 
years, under a system of industrial partnership, the firm had 
divided all beyond a "fair" profit with their employees. 
They have now no resource such as they would have had if 
they had kept whatever profits they had made in good years 
for just such an occasion as this. Will the employees now 
turn about, and share losses with their employers ? Assuredly 
not, — that is itnpossible. In a good year, then, capital may 
make what seems a large profit; but this will only make a 
fair average with bad years. Having shared the profits of 
prosperity, capital now has to bear the loss of adversity 
alone. To quote the words of a prominent American manu- 
facturer, " We can give away profits, but would like to know 
how we can share losses." 

Propositions have not been lacking for methods by which 
capital can "share losses" as well as "give away profits." 
The most feasible of such plans is the reserve fund system. 
In good years, a certain per cent, of profits is to be laid aside 
before paying bonus to labor, and put into a reserve fund 
which shall serve to support the establishment during the 
troublous times of a bad year or a commercial depression. 
In itself, the plan has justice to recommend it, and, if it 
could be consistently carried out, would probably meet the 
objection for which it is intended. The practical drawbacks 
to its introduction are, however, serious. The chief idea of 
industrial partnership is the direct stimulus of the prospect 
of immediate gain to the laborer. This stimulus is blunted 
by any prior claim on profits beyond the absolutely necessary 
one of immediate return of profit and interest on capital. The 



236 QUABTEBLT JOURNAL OF ECONOMICS 

same exertion will not be made, the same care and economy 
will not be exercised, to put money into a reserve fund, that 
woald be exercised if the laborers knew that they were 
putting so much money into their own pockets. Hence, one 
yt ,^ y^ ^ chief cause of the efficiency of profit-sharing is in great degree 
lost. 

Theoretically, the above objection concerning the inequal- 
ity of profits in different years is of less weight than is gen- 
erally given to it by practical men. The extra profits to be 
made by the increased efficiency and economy of labor, act- 
ing under the stimulus of immediate gain, is due, according 
to the theory of profit-sharing, to labor alone, and should be 
the property of labor alone. When the capitalist pays over 
this amount to labor, he is paying what really belongs to 
labor. He is not actually sharing anything, except under 
the conventional idea that all profits belong to capital. 

In putting such ideas into practice, however, almost insu- 
perable difficulties arise, sources of endless disagreement 
and dispute are opened. In actual business, it would prove 
extremely difficult to persuade the average business man that 
the profits which he saw standing in his books at the end of 
the year were not his own. They may have been gained by 
the increased efficiency of labor, but that is an almost imper- 
ceptible process. The business had gone on as usual. Ordei-s 
had come in and been filled, the book-keepers had gradually 
filled up the books with figures relating to the details of the 
business, the laborers had all received their weekly wages, 
and gone about their work very much as usual. Is it likely 
that the average business man will see anything in all this 
to make him regard the profits he figures up at the end of 
the year as belonging in any part to his workmen ? He has 
always been taught to regard them as his own, and he will 
continue so to regard them. And all this is on the supposi- 
tion that he has been induced to believe in this scheme, as 
destined to regenerate the world of industry, and to give it a 
trial, and it is needless to say that this is a violent supposi- 
tion to extend over all the various ramifications of business ; 
for industrial partnerships must become the prevalent and 



NOTES AND MEMORANDA 237 

permanent organization of industry, according to oar sup- 
position. We can now see what a difficult supposition this is. 
The introduction of the system of profit-sharing has been the 
work of a few philanthropioally inclined gentlemen, entirely 
from their own initiative. Its advantages, certainly, are not 
evident to most business men. And, however honorably 
those philanthropioally inclined gentlemen have carried out 
their own agreements with their workmen, the morals of busi- 
ness are unfortunately such that it would be almost absurd 
to expect such action, on the part of the entire business com- 
munity. The only safeguard the interests of labor could 
have would be the publication entire of their employer's 
accounts, with the full record of profits or loss^. And this 
is the source of another very serious objection to profit- 
sharing. 

Secrecy in the matter of a firm's accounts is one of the 
most important elements in the security and stability of busi- 
ness, even in the soundest houses. If it were allowed to leak 
out whenever any temporary embarrassment arose, or if a 
firm published as its profits at the end of the year a much 
smaller amount than was recognized as necessary for the safe 
conduct of business, or, still worse, if it were obliged to pub- 
lish the amount of its losses instead of its profits, there would 
at once be an end of all credit. And in credit is the main- 
spring of all business. What bank would keep up its dis- 
counts of the paper of a house that was confessedly losing 
money ? Would such a house be able to make its purchases 
on time at favorable rates? A temporary embarrassment 
may arise in the safest and most conservative house, which 
can be tided over by means of its credit; but that credit 
would rapidly disappear if the condition of its afEairs were 
published. This is one feature of profit-sharing that militates 
strongly against its general adoption. 

Another objection to profit-sharing frequently put forward 
is based upon the same necessity of publishing the affairs of 
participating firms. It is that, if a house is making unusually 
large profits, and it becomes known, capital will immediately 
be attracted to that business, and competition will force down 
profits, — a thing which the firm could have avoided by keep- 



238 QUABTEBLT JOURNAL OF ECONOMICS 

ing secret the rate of its profits. But this objection relates 
to circumstances entirely incidental and exceptional. There 
are very few lines of business that make exceptional profits 
from lack of competition and as a permanent thing. These 
will inevitably be discovered, and the rush of capital will 
begin. Such circumstances can have little weight in the 
consideration of industrial partnerships, as applied to every- 
day business. 

The Orleans Railway in France is one of the oldest cases 
of industrial partnership. For twenty years, it practised the 
system with considerable success, down to the years 1863- 
1870, when the profits going to labor fell o£E, and were reduced 
to a very low figure. This was due, partly to a change in the 
regulations, requiring a payment into a pension fund before 
distribution should be made to employes, but chiefly to the 
great extension of the railway by the absorption of other lines, 
and consequent great increase in the personnel^ without a cor- 
responding increase in the profits. In 1844, the number of 
participants was 719. In 1882, the number was 16,936. This 
experience illustrates one serious practical obstacle to the 
application of the principle of profit-sharing. Thb difficulty 
is liable to be felt not only in consequence of "stock- watering'* 
in corporations, — sometimes a necessary and legitimate busi- 
ness operation, — but in private firms as well. Such a firm 
might wish to extend its operations, employing a large force 
of workmen to perform its increased business, and adding, 
possibly, to its capital. Now, in this case, — as very frequently 
happens in our large retail establishments, — the firm might be 
satisfied with a considerably smaller rate of profits, supposing 
that its increased facilities permitted it to turn over its capital 
more frequently every year. The increased force of worlanen 
required to do this increased business, however, would not 
gain, but would suffer, supposing a system of profit-sharing to 
be in force. Though the gross profits of the firm might be 
enough to satisfy it, even though they were a smaller per- 
centage of the capital, — for the total income might remain the 
same or even be increased, — yet the amount going to each 
workman would be reduced or entirely swept away. Industrial 
partnerships would thus be made impossible in a large class of 



NOTES AND MEMORANDA 289 

establishments, or at least would be greatly impaired in their 
efficiency. 

The entrepreneur is perhaps the most important man in the 
modem indostrial system. The greatest rewards in the field 
of business are paid to him who can best carry on the great 
business enterprises of the world. The managing ability is 
a very rare one in its highest development, and its reward is 
proportionately great. Bat there is as much difference in the 
qoidity of those who undertake the functions of the entre- 
preneur as in any other branch of human activity : — 

The successfnl conduct of business under free and active competition 
is due to exceptional abilities or to exceptional opportunities. . . . First, 
we have those really gifted persons who, in common phrase, seem to 
turn ever3^thing they touch into gold. . . . Next, . . . the much larger 
class of men of a high order of talent, . . . sagacious, prompt, and reso- 
lute. . . . Then the men . . . well-to-do or pretty well-to-do, . . . men 
who are never masters of their fortunes, ... yet who win no small 
profits. . . . Lower down . . . are a multitude of men who are found 
in the control of business enterprises for no very good reason that can 
be seen, . . . sometimes doing well, but more often ill. . . . More com- 
monly, they have forced themselves into business under a mistaken idea 
of their abiUUes.* 

Such being the difference observable between different 
members of the managing class, what would be the result, 
nnder a widely spread adoption of industrial partnerships? 
It would be simply to subordinate the pay of the laborer to 
the success of the capitalist who employs him. Let us sup- 
pose two factories, run by two entrepreneurs of different 
degrees of business ability, — one a highly successful ^captain 
of industry,'' the other, one of the lower grades of men. 
Industrial partnership is adopted in both mills. The two sets 
of laborers work equally hard under the stimulus of the ex- 
pected addition to their stipulated wages. They are equally 
economical, and, on the whole, equally skilful and efficient. 
At the end of the year, it is found that one mill has made 
large profits ; the other, scarcely enough to pay interest on the 
capital invested. The one pays its stockholders a handsome 
dividend, and has enough to divide ten or fifteen per cent, of 

*F. A. Walker, Political Economy, pp.,24S-251. 



240 QUARTERLY JOURNAL OF ECONOMICS 

wages as a bonus among its operatives, besides the oorrent 
rate of wages. The other set of laborers receive nothing 
beyond their wages. This disparity has arisen, not from any 
fault of the second set of operatives, not through any de- 
ficiency in productive capacity of the second mill, but solely 
through the poor management of the business in the counting- 
room. It is neither equitable nor reasonable that such results 
should appear; yet they must inevitably and constantly ap- 
pear, under an extended system of industrial partnerships. It 
is needless to say that it is simply impossible that any indus- 
trial system should long be carried on under such inequitable 
conditions. It is an imperative demand of economic law that, 
where competition and the movement of labor are free, similar 
services shall receive the same reward. As the rate of wages 
in one cotton mill cannot permanently vary from the rate in 
another, still less can the rate of reward for equal services 
vary — as it would inevitably vary under a system of indus- 
trial partnership — between two such mills as we have sup- 
posed, which might be on opposite corners of the same street. 
We may venture, however, to draw one general principle, 
which, if established, will prove of great practical ser- 
vice in the application of industrial partnership, when some 
means have been found of escaping the difficulties suggested. 
A study of the actual cases of its trial will show that, where 
capital plays a subordinate part, where the functions of the 
entr^Dreneur are reduced to the minimum, where wages of 
superintendence to secure the best results are necessarily 
high under the ordinary conduct of the business, there will 
industrial partnership be applied with the best chance of suc- 
cess. Take, for example, the celebrated Maison Leclaire, the 
Parisian house-painting establishment, where profit-sharing 
was first introduced. The business of house-painting is one 
in which capital holds a subordinate part. Labor is the chief 
factor. On skill, industry, care, and economy, and a high 
standard of work done, rest the reputation and the success of 
the house. These things industrial partnership is likely to 
secure. Superintendence is difficult and expensive where 
workmen are scattered, perhaps, over a whole city. Such a 
business does not require for its success the great faculties 



NOTES AND MEMORANDA 241 

of business management, the rare qnalities of an evitrepreneur. 
Let It be for the interest of the workmen that they exer- 
cise skill, care, economy, and industry, and they become their 
own superintendents. The money that would otherwise be 
paid for this can with justice and profit be paid to them. 

Similar is the case of the Orleans Railway. Material used, 
fuel, and the wear and tear of the rolling-stock and other 
costly equipment constitute a great part of the expense of 
running, when once the road has been built. Superintendence 
here, too, is difficult, and expensive in the extreme. In fact, 
every employee of a railway must necessarily have a certain 
responsibility, not only over materials, but also over human 
life, — from a business point of view, far more costly than 
materials, — utterly unknown to the ordinary workman. To 
secure the best meeting of this responsibility, industrial part- 
nership may prove, in a limited measure, effective. 

Agriculture is another example of the same sort. Manual 
labor is the chief part. Capital is in the background. The 
functions of the entrepreneur almost disappear, and increase 
of efficiency of labor makes an important element of success. 

With industrial partnerships in manufactures, however, the 
case is far different. Most of the objections are here appli- 
able in full force. Financial management is a preponderating 
part of the business. Much labor-saving machinery is used, 
requiring little operative skill ; and such skill and industry as 
are necessary may be easily secured, from the fact that all 
employees are together in one building, and superintendence 
is easy and effective. Success depends chiefly upon the con- 
trolling head in the treasurer's office. 

But, granting all that is claimed for the system of industrial 
partnership by its advocates, suppose it introduced and in 
operation in all the various departments of industry where 
labor is hired. In what respect will the situation of labor 
and capital be changed? What present difficulties are set- 
tled? Will there be any less difficulty between employers 
and employed concerning the rates of wages, independent 
of the question of bonus? There will be exactly as much 
as at present to quarrel over in fixing that rate. The most 
that will result will be a slight change in the respective levels 



242 QUARTERLY JOURNAL OF ECONOMICS 

of return to capital and labor, and the permanence of this 
change may well be doubted. All labor would receive a 
greater or less additional return under the name of ^^ profits'' 
or "bonus"; but when these "profits" become the rule, and 
not the exception^ will the prospect of receiving them afford 
the same stimulus that it does now? It is even a question 
whether the action of competition would not force down the 
rate of wages, strictly so called, until the total remuneration 
is no greater than at present. 

As for the solution of the "labor problem," which is confi- 
dently asserted to have been discovered in industrial partner- 
ship, it is a delusive hope. Profit-sharing firms please and 
satisfy their employees by the "profits" or "bonus" which they 
pay them beyond their usual wages, such as their less favored 
fellow-workmen receive, and then announce that they have 
found an end for strikes and all difficulties with labor. Is it 
not possible that much of this satisfactory result is due to the 
exceptional character of the system at present, and the excep- 
tional position of operatives, instead of to any essential virtue 
of the system which will continue after it has become uni- 
versal? The glamour and emotional interest which surround 
the experiments in industrial partnership have prevented any 
practical test from ever yet being made, that would give the 
system an undoubted claim to be considered a solution of the 
"labor problem." There are practical considerations, as we 
have seen, which will probably render any such test impossi- 
ble. But it would also seem that there are theoretical reasons 
for doubting the justice, the reasonableness, and the efficiency 
of the scheme as a possible rearrangement of the industrial 
system. 

RiCHABD AlDBICH. 



RECENT PUBLICATIONS UPON ECONOMICS. 



[Chiefly published or announced Binoe September, 1886.] 



L GENERAL WORKS, THEORY AND ITS HISTORY. 



Adlbr (G.). Die Gnmdlagen der 
Karl Marxschen Kritik der Beste- 
henden Yolkswirthschaft. Tfi- 
bingen: Lanpp. Svo. 6 m. 

Boehm-Bawsrk (E. v.). Grand- 
zuge der Theorie des Wirthschaft- 
licnen Guterwerths. Theil II. 
Jahrb. f. Nat. Oek., 13, Heft 6. 

Clakkb (J. B.). The Philosophy 
of Wealth. Economic Principles 
newly formulated. Boston : Ginn 
& Co. pp. 236. $1.10. 

CoHN (G. ). Nationalokonomische 
Studien. Stuttgart: Enke. Svo. 
pp. 796. 16 m. 

DiXTZEL (H.). Karl Rodbertus; 
Darstellung seines Lebens und 
seiner Lehre. Erste Abtheilung. 
Jena: Fischer. 2 m. 



Felix (L.). Der Einfluss der Sitten 
und Gebrauche auf die Entwickel- 
ung des Eigenthums. Leipzig: 
Dimcker & Humblot. Svo. pp. 
462. 9 m. 

Lbfebvre (G.). Precis d'Econo- 
mie Politique k P Usage des tXaXy- 
lissements d'lnstrucUon Secon- 
daire Nevers: Mazeron. Svo. 
pp. 278. 

McLeod (H. D.). Economics for 
Beginners. New York: Homans 
PubTCo. pp.181. $1.00. 

In Periodicals. 
Leboy-Beaulieit (P.). De la 
Repartition des Revenus dans les 
Soci^tds Contemporaines. • £cono- 
mlste Fran^ais, Nov. 27. 



n. ECONOMIC HISTORY AND DESCRIPTION. 



BiTCHWAiJ>. Zur Deutschen Wirth- 
schaftsgeschichte im endenden 
Mittelalter. Band II. Kiel: Ho- 
mann. Svo. 4.50 m. 

EuiJOTT (H. W.). Our Arctic Prov- 
ince, Alaska and the Seal Islands. 
Illustrated. New York: Charles 
Scribner^s Sons. Svo. $4.50. 

Fechneb (H.^ Die Handelpoli- 
tischen Beziehungen Preiissens zu 
Oesterreich wahrend der provin- 
cialen Selbst-standigkeit Schlesi- 
ens, 1741-1806. BerlLi: G. Refaner. 
12 m. 

Heyd (W.). Histoire du Com- 
merce du Levant an Moyen Age. 
[Revised and enlarged by tne 
author.] Publico sous le Patron- 
age de la Soc de T Orient Latin, 
par Furcy Raynaud. Vol. II. 



Leipzig : Harrasowitz. Gr. 8vo. 
pp. 799. 16 m. [Complete, SO m.1 

Kappleb (A.). Surinam, una 
seine Kulturverhaltnisse mit 
Bezug auf Kolonization. Stut- 
^rt : Cotta. 5 m. 

Lampbecht. Deutsches Wirth- 
schaftsleben im Mittelalter. Leip- 
zig: A. Dfirr. 3 vols. Svo. 80 m. 

LiMSCHOTEN (J. H. van). The Voy- 
age of, to the East Indies. Edited 
from the English Translation of 
151^. London: Hakluyt Society. 

Reeve (J.) The Rothschilds : The 
Financial Rulers of Nations. Lon- 
don : Sampson Low & Co. [An- 
nounced.] 

Rein (J. J.). Japan nach Reisen 
und Studien im Auftrag der Ko- 
niglichen Preussischen Regierung 



244 



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dargestellt. Band 11. Land and 
Forstwirthschaft, Industrie and 
Handel. Leipzig: Engelmann. 
Gr. 8vo. 24 m. 

RiCHTBB. Handel und Verkehr der 
wichtigsten Volker des Mittel- 
meeres im Alterthume. Leipzig : 
Seeman. 8vo. pp. vii, 236. 

Stevkns (H.). The Dawn of Brit- 
ish Trade to the East Indies: as 
recorded in the Court Minutes of 
the East India Company. Intro- 



duction by Sir Geo. Birdwood. 
London: H. Stevens & Son. d. 
8vo. pp. 331. 21s. 
Wells (D. A. ). A Study of Mexico. 
[Reprinted from the Pop. Scl. 
Monthly.] New York: D. Apple- 
ton & Co. $1.00. 

In PeriodiccUs. 

MuLHAXL (M. G.). Ten Years of 
National Growth. Contemp., 
Dec. 



IIL POPULATION, EMIGRATION, AND COLONIES. 



Abendt (C). Ziele Deutscher Ko- 
lonialpolitik. Berlm: Walther & 
Apola^t. 8vo. pp. 38. 50 m. 

Baumgabtek (J.). Die Deutschen 
Kolonien und die Nationalen In- 
teressen. Eoln: Dumont-Schau- 
berg. 8yo. pp. 114. 2.40 m. 

BuBCHEB (K.). Die Bevolkerung 
Frankfort am Main im XIV. u. 
XV. Jahrhundert. Tubingen: 
Laupp. 8vo. pp. 736. 15 m. 

Fbanckenstein. Bevolkerung und 
Hausindustrie im Kreise Schmal- 
kalden seit Anfang dieses Jahr- 
hunderts. (Band it. of Beitrage 
zur Geschichte der Bevolkerung 
in Deutschland seit Anfang dieses 
Jahrhunderts, edited by F. J. Neu- 
mann.) Tubingen: Laupp. 8vo. 
5 m. 

Jansen (C. W.). Die Holland- 
ische Eolonialwirthschaft in den 
Battalandem. [From the Polit- 
ical Science Seminar at Strasburg.] 
Strasburg: Triibner. 8vo. pp. 
112. 3 m. 

Lanessan (J. L. de). L' Expan- 
sion Coloniale de la France. Paris : 
Germer, Baillifere & Cie. 8vo. 
12 fr. 

Oboe AS (J.). La Pathologic des 
Races Ilumaines et la Colonisa- 
tion : Etude Anthropologique et 
^^conomique faite ^ la Guyane 
Fran^aise. Paris: Doin. '8vo. 
pp. 424. 9 fr. 



Salmon (C. S.). The Crown Colo- 
nies of Great Britain : An Inquiry 
into their Social Condition and 
Methods of Administration. [Cob- 
den Club Publication.] London 
and New York : Cassell & Co. 
12mo. pp. 112. 

ScHMOLLEB, Thibl (and others). 
Die Innere Kolonization in 
Deutschland. Erfahrungen und 
Vorschlage. |Bd. 32 of Schriften 
des Ver. f. Socialpolitik.] Leip- 
zig : Dimcker & Humblot. pp. 
229. 6.40 m. 

Simmons (A.). State-directed Colo- 
nization explained and defended : 
together with a Proposed ** Sys- 
tem." London: Stanford, pp. 
1&4. 8vo. 6d. 



In Periodicals. 

Mellick (A. D., Jr.). Grerman 
Emigration to the American Colo- 
nies : Its Cause and the Distribu- 
tion of the Emigrants. Penn. 
Mag. of Hist, and Biog., Oct. 

Molinabi (G. de). Le Ralentisse- 
ment de la Population en France. 
Joum. des ^ficon., Dec. 

PiOEONNEAU (H.). La Politique 
Coloniale de Colbert. Annales de 
Vtc, des Sci. Pol., Oct. 

ScHAEFFLE. Kolonlalpolitischc 

Studien. Zeitsch. f. G«8am. 
Staatsw., 42, Heft 4. 



RECENT PUBLICATIONS UPON ECONOMICS 



245 



IV. PRODUCTION, MANUFACTURES, AGRICULTURE. 



Barbbret (J.). Le Travail en 
Fnmce. Monographies Profes- 
sionnelles. 2 vols. Paris : Ber- 
ger-Levrault & Cle. 8vo. pp. 472. 
Each vol., 7.50 fr. 

CoHN (G.). Zur Fabriksesetzgeb- 
ung [review of several govern- 
ment reports], Jahrb. f. Nat. 
Oek., 13, Heft 6. 

Dbnnis (R.). Industrial Ireland : 
A Practical Policy of Ireland for 
the Irish. London : Murray. Or. 
8vo. I Announced.] 

In Periodicals. 
Hlloard (£. W.). The Beet-sugar 



Industry in California. Overland 
Monthly, Dec. 

Klein WAECHTEB (F.). Die Jahres- 
berichte der Oesterreichischen Ge- 
werbeinsi)ektoren fiir 1884 und 
1885. Jahrb. f. Gesetz., 10, Heft 4. 

Unsigned. The Cotton Oil Trust. 
The Organization which seeks to 
control the Cotton-seed Product 
of the South. Bradstreet's, Oct. Si). 

. The Industrial Year 1880 

[giving a list of the strikes of 
1886]. Bradstreet's, Jan. 8. 

. Unsere Fabrikinspektoren 

[review of the German factory in- 
spection reports for 1885]. Preuss. 
Jahrb., 68, Heft 6. 



V. EXCHANGE AND TRANSPORTATION. 



Anonymous. Cotton Movements 
and Fluctuations. 1881-«6. [Thir- 
teenth year. 1 New York : Latham, 
Alexander & Co. $2.00. 

Bakthold (K.). Wahmehmungen 
bel der Entwickelung der Trans- 
I)ortimttel. Berlin: Simion. 8vo. 
pp. 115. 3 m. 

Bebicht iiber den Betrieb der unter 
Konigl. Sachs. Staatsverwaltung 
Staats- und Privat- Eisenbahnen, 
mit Nachrichten iiber Eisenbahn- 
neubau im J. 1885. Dresden: 
Wamatz & Lehman. 4to. pp. 
348 and 775. 20 m. 

Enedbm ANN. Das Recht der Eisen- 
bahnen [in Crermany]. 2te Halfte. 
Leipzig: Fues. 8vo. pp. 401-^25. 



A History of Eng- 
London : Bentley 



7.50 m, 
FOXWELL (E.). 

lish Railways. 

& Sons. 8vo. 
Grierson (J.). Railway Rates 

Knelish and Foreign. London 

E. Stanford, d. 8vo. 58. 



Limousin (C). L* Organisation 
G^n^rale des Chemins de Fer Fran- 
9ais et les Systdmes de Tarification 
des Transports. Paris : GuiUau- 
min. 8vo. 1 fr. 

In Periodicals. 

Hadlet (A. T.). Railroad Abuses 
at Home and Abroad. New Princ. 
Rev., Nov. 

Jeans (J. S.). Railway Problems: 
An Inquiry into the Conditions of 
Railway Working In Different 
Countries. London: Longman & 
Co. [Announced.] 

PoLAKOWSKY (H.). Der Panama 
CanaL Deutsche Rundschau, 
Nov. 

Unsigned. Compte de Garantie 
d^Int^r^t aux Compagnies de Che- 
mins de Fer. Bull, de Stat, et de 
L^g. Comp., Sept. 

Waring (C.). State Purchase of 
Irish Railways. Fortnightly, Dec. 



VL INTERNATIONAL TRADE AND CUSTOMS TARIFFS. 



Marcus (V.). Die Seehafen Im 
heutigen Weltverkehr. [No. 60 
of Volksw. Zeitfr.] Berlin: Shn- 
ion. 8vo. 1 m. 

Onckbn (A.). DieMaxlme Lalssez 
faire et Laissezpasser, ihr Ur- 
spmng imd ihr Werden. Beitrag 
zur (^chichte der Freihandels- 
lehre. Bern: Wyss. 8vo. 2 fr. 



Todd (Mrs. Marion). Protective 
Tariff Delusion. Battle Creek 
(Mich.): W. C. Gage & Son. pp. 
112. $1.50. 

WoLP (J.). Thatsachen und Aus- 
sichten der Ostlndischen Con- 
currenz im Weizenhandel. Tfl- 
bingen: Laupp. 8vo. 3 m. 



246 



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Vn. FINANCK 



DlCmONNAIBE DE8 FlNANCBS. 

Sous la Direction de L^on Say, "pa^r 
Foyot et Lanjallay. Fascic. 5, 6. 
Paris :Berger-Levrault&Cie. 3.50 
fr. each. 

Habtmann (G.). L' Alcool et Tlm- 
pdt des Boissons. Paris : Guil- 
lamnin. Svo. pp. 386. 5 f r. 

Neymabck (A.). Un Conseil Su- 

g^rieur des Finances. Paris : 
uillaumin. Svo. 1 fr. 

Ppannstiel (S. ax Geschichte 
und Statistik der Gmndsteuerrer- 
fassongen Schivelbein: Puch- 
stein. 4to. pp. 56. 2 m. 

RoscHEB (W.). System der Finanz- 
wissenschaft. [Des Systems der 
Volkswirthschaft Vierter Theil, 
Erste HalftcJ Stuttgart: Cotta. 
Svo. pp. 670. 10 m. 

Stein (L. von). Lehrbuch der Fi- 
nanzwissenschaft. 2 Theil, Die 
Finanzverwaltimg Europas. 3 
Abth., Das Staatsschuldenwesen. 
Leipz^: Brockhaus. [5th revised 
ed.j 8vo. pp.427. 8m. [Com- 
plete, 34 m.j 

Stoubm (R.). L'Impdt sur TAlcool 
dans les Principaux Pays. Paris: 
Goillaumin. 18mo. 3 f r. 

Waoneb (A.). Finanzwissen- 
schaft. Dritte Theil, Specielle 
Steuerlehre. [Band VU. des 
Lehrbuchs der Politischen Oekon- 
omie, von A. Wagner und E. 
Nasse.] Erstes Heft, Steuerge- 
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In Periodicals, 

GiHEL (C). Le Cadastre. Joum. 
de la Soc. de Statis. de Paris, Nov. 



Lacobibb (E.). Les Finances et les 

Grands Travaux Publics. Econ- 

omiste Fran^ais, Oct. 23. 
Leroy-Beaulieit (P.). L'^quit^ 

et la Pratique en Mati^re d^Impdts. 

]6conomiste Fran^ais, Nov. 13, 20. 
Lewald (F.). Die Dlrekten Steuem 

im Grosshertzogthum Baden. 

Flnanz-Archiv, 1886, IL 
ScHANZ (G.). Die Besteuerung 

der Genossenschaften in den 

Deutschen Staaten und in Oester- 

reich. Finanz-Archlv, 1886, II. 
ScHARLura (W.). Die Finanzver- 

hiiltnisse Danemarks. Flnanz- 
Archiv, 1886, n. 
Stbobll (M.). Ueber die Neueste 

Konversionsaera in Deutschland. 

Jahrb. f. Nat. Oek., 13, Heft 5. 
Unsigned. Die Reform der Zuck- 

ersteuer. AnnaL des Deutsch. 

Reichs, No. 11. 
, Imperial Taxation of Real 

and Realized Personal Property. 

Economist, Oct. 9. 

Les :^mi8sion8 Publlques 



en Europe depuis Qulnze Ana. 
Bull, de Stat, et de L^gls. Comp., 
Sept 

L'Impdt sur la Fortune 



Mobill^re et Immobill^re dans le 
Canton de Yaud. [With the text 
of the law of 1886.] Bull, de Stat 
et de L^g. Comp., Sept, Oct 

Wabschaubb (O.). Entstehung 
und Entwickelung der EHassen- 
Lotterie in Preussen (1703-1813). 
Zeitsch. f. Gesam. Staatsw., 42 
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Wiss (E.). Die Besteuerung des 
Branntwelns. Yierteljah. f. 
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Vni. MONEY, BANKS, AND CREDIT. 



AU08PURG (G. D.). Der Wieder- 
gang der Preise und die Wahr- 
ungsf rage. Bremen : Solomon, 
pp. 105. 80 m. 

Del Mab (A.). Money and Civili- 
zation; or, A History of the Mon- 
etary Laws and Systems of Vari- 
ous States since the Dark Ages, 
and their Influence on Civilization. 
London: Qeo. Bell & Sons. d. 
Svo. 14s. 

PowLEB (W.). Appreciation of 



Gold. An Essay. [Cobden Club 
Publication.] London: Cassell & 
Co. 8vo. pp. 77. 6d. 

Gelehbt (A.). Ueberproductlon 
undWahrimg. Berlin: Puttkam- 
mer & Miihlbrecht 8vo. pp. 
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Gibbs (H. H.) and Gbbnfell 
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Messbau (£.). Rational Banking 



RECENT PUBLICATIONS UPON ECONOMICS 



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V8, Bank Monopoly. London: 
£. Stock. [Announced.] 

MiKISTEBO DI AOBICOLTUBA, In- 
DUSTBIA, E COMMBBCIO. Movi- 

mento del Pressl di Alconi Generi 
Alimentari dal 1862 al 1885. 
Roma : Eredi Botta. 

Papa d' Amico (L.). I Titoli di 
Credito Surrogati della Moneta. 
Formazione ed Indole Storico- 
giuridica. Catania: Giannotta. 
8vo. pp. 379. 7.50 fr. 

SoBTBBKB (A.). Graphische Dar- 
stellungen in Bezug auf die Silber- 
frage. Berlin: Puttkammer <fc 
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. Materialien zur Erlautening 

und Beurtheilung der Wirthschaft- 
lichen Edelmetallyerh&Itnisse und 
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lin: Puttkammer <fc Muhlbrecht. 
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Struck (E.). Der Internationale 
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WiRTH (M. ) . Die Quellen des Reich- 
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In PeriodicaU. 
Bo ALT (J. H.). The Silver Ques- 
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Chbvassvs (H.). a Short Account 



of the Latin Monetary Union. 
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Fauchille (P.). L' Union Mon4- 
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FouRNiEB DE Flaix (E. ). Le Pro- 
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GiBBS (H. H.). The Bimetallic 
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Oct. 

Lero y-Bb AULiEU (V,). D* un Com- 
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Lethbbidgb (Sir R.). Bimetal- 
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ScHABLiNG (W.). Der Detailhan- 
del und die Warenpreise. Jahrb. 
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SiDGWiCK (H.). Theory of Inter- 
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IX. SOCIAL QUESTIONS. 



Anontmouh. Die Behandlung der 
Armenstiftungen. [From Schrif- 
ten des Deutsch. Ver. f. Armen- 
pflege.1 Leipzig: Duncker & 
Humblot. 8vo. pp. 80. 1.80 m. 

. Die Wohnungsnoth der 

Aermeren Klassen in Deutschen 
Grossst&dten und Yorschlage zu 
der^n Abhiilfe. Band II. of Schrif- 
ten des Vereins fflr Socialpolitik. 
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;^88. 9.60 m. 

Babbnbbitheb (J. M.). Die Eng- 
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Babkounine (M.). II Socialismo e 
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Bax (E. B.). The Religion of So- 
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Boehmebt (V.). Das Armenwesen 
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gen Annenverbanden. Dresden: 
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Bbabazon (Lord). Social Arrows. 
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Chaxve (J. F.). Trente Mllle 
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pp. 178. 3 f r. 

Clement (A. ) La Crise Economlque 



248 



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et Sociale en France et en Europe. 
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D'Hakcoubt. Quelques Reflexions 
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Eldeb (C). Man and Labor. Chi- 
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Glasson (E.). Le Code Civil et la 
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Hasse (E.). Die Wohnungsverh&lt- 
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Hbbtzog (A.). Die Bauerlichen 
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I K T E B-DeNOMINATIONAL C O N- 

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Eaebgbb (K. ). Die Lage der Haus- 
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Lbctubes. The Claims of Labor. 
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Mabshall (W. v.). Unfair Dis- 
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MiCHAUX (E.). Le Vral Remade k 
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Mills (H. V.). Poverty and the 
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Neubath (W.). Das Recht auf 
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Oechelh AEUSEB ( W. ). Die Arbeit- 
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Planta (P. C. von). Die Recon- 
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Reitzenstein (F. von), editor. 
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ScHENCK (A. F.). Jahresbericht 
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Shaw ( Albebt). Co-operation in a 
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SHirn (L.). Les Coalitions et les 
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Steinmann-Bucheb (A.). Die 
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SuMNEB (W. G.). Sociale Pflich- 
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White (Abnold). The Problems 
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Babnbtt (S. a.). Distress in East 
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Bbbtagnolli (C). Gli Scioperi 
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Chkysson (E.). La Question des 
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Lkboy-Beaxjliku (P.). De la Pr^ 
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Osgood (H. L.). Scientific Social- 
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Raffalovich (A.). Le Logement 
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Si DO WICK (H.). Economic Social- 
ism. Contemp. Rev., Nov. 

Sumner (W. G.). What makes the 
Rich richer and the Poor poorer. 
Pop. Sci. Monthly, Jan. 

Vaughan (J. S.). Social Disturb- 
ances: Their Cause and Cure. 
Dubl. Revy Oct. 

WnfxiCH (W.). Die Altersversich- 
erung. Preuss. Jahrb., 58, 
Heft 6. 



X LAND. 



Bbbghoff-Ising (F.). Die Ent- 
wickelung des Landwlrthschaft- 
lichen Pachtwesens in Preussen. 
Elne Historischokonomische Stu- 
die. Leipzig : Winter. 8vo. pp. 
104. 1.60 m. 

Bbickdale (C. F.). Registration 
of Title to Land, and how to es- 
tablish It without Cost or Compul- 
sion. Loudon: E. Stanford, d. 
8vo. 5s. 

FoYiLLE (A. de). Bibllographle: 
Le Morcellement. Paris : Berger- 
Levrault <fe Cle. 8yo. pp. 12. 

Hall (T. H.). The Law of Allot- 
ments. Being a Treatise on the 
Law relating to the Allotment of 
Land for the Laboring Poor. Lon- 
don: Longman & Co. Cr. 8yo. 
7s. 6d. 

Pilling (W.). Order from Chaos. 
A Treatise on Land Tenure. Lon- 
don: Chapman & Hall. 8vo. pp. 
200. 2s. 6d. 

SCBUTTOK (T. E. ). Land in Fetters ; 
or, The History and Policy of the 
Laws restraining the Alienation 
and Settlement of Land In Eng- 
land. [Yorke Prize Essay.] Cam- 
bridge. 8vo. pp. 162. 7s. 6d. 



In Periodicals* 



Babhb (O.). Die Erhaltung der 
Bauerngiiter in dem ehemallgen 
Kurhessen. Jahrb. f. Gesetz., 10, 
Heft 4. 

Buchenbebgbb (A.). Die Prak- 
tlschen Ergebnlsse der Badlschen 
LandwlrthschaftUchen Erhebuns- 
en. Jahrb. f. Gesetz., 10, 
Heft 4. 

FiTZMAUBiCE (L'd E.) and Smith 
(H. H.). Rural Enclosures and 
Allotments. Nineteenth Cent., 
Dec. 

Hoffman (L.). Die Plurvereln- 
Igung In Baden. [Zusammenlegung 
der Grundstiicke und Regelung 
der Feldwege.] Jahrb. f. Gesetz., 
10, Heft 4. 

Levi-Fleuby (E.). De la Propritft^ 
des Mines, h, propos de Falts 
Recents. Joom. des ]^con., Sept., 
Nov., Dec. 

Pbothkbo (R. E.). Tenant Right 
and Agrarian Outrage In France. 
Contemp., Dec 

Unsigned. Distribution of Allot- 
ments. Economist. Oct. 2. 



XL LEGISLATION. 



Schneidbb (A.). Die Gesammte 
Zucker-Zoll- und Steuer Qeaetzg&- 
bung Im Deutschen Reich. Mln- 
den: Schneider. 8yo. pp. 100. 
.80 m. 



Tboje. Die Rflbenznckersteuer des 
Deutschen Relchs. Handbuch for 
Steuerbeamte, Industrielle und 
EAufleute. Harburg: Elkan. 8vo. 
pp. 179. 4 m. 



1 



250 



QUARTERLY JOURNAL OF ECONOMICS 



ViGOUBOirx (EL). Legislation et 
Jurispradence des Chemins de Fer 
et des Tramways. PaxU : Thorin. 
8vo. pp. 438. 10 fr. 

WYiatoop (R.). Vessels and Voy- 
ages as r^olated by Federal Stat- 
utes. New York: Burr Printing Co. 

In Periodicals. 
AuBUBTiN (F.). titnde sur THis- 
toire de I'lmpbt Fonder en France 
jnsqa'en 1789. Annales de Vtc 
des Scl. PoL, Oct. 



B^babd-Vabaonac. La JToridic- 
tion des Prud'hommes. Econo- 
miste Fran^ais, Koy. 20. 

FuLD (L.). Die Unfallsentschadig- 
ung der Arbeiter Im Gebiete des 
FranzosLschen Rechts. Vierteljah. 
f. Volksw., 23, IV., 1. 

Thomson (T.). The Effect on Com- 
merce of the Law of Limited Lia- 
bility. [A Prize Essay.] Joum. 
of Inst, of Bankers, Oct. 



XIL STATISTICS. 



Annuaibb Statistique db la 
Fbancb. (Ninth year.) 1886. 
Paris: Impr. Nationale. Svo. 
pp. XXX, 718. 

Babkbb's Tbadb Ain> France 
Annuax, 1886-67. A Book of 
Reference on Matters relating to 
Trade and Finance. With colored 
maps of the EneUsh, American, 
and Indian Rsllroad Systems. 
London : E. Wilson. 8yo. pp. 
430. 6s. 

MErrzEN (A.). Geschlchte, Theorie 
und Tedmik der Statistik. Ber- 
lin: W. Hertz. 8vo. pp. 214. 
4.60 m. 

Tablkait G^k^bal dn Commerce 
de la France avec ses Colonies et 
les Poissances Etrang^res pendant 



TAnn^e 1885. Paris: Imp. Nat 
4to. pp. Ixvil, 762. 

In Periodicals. 

Atkinson (E.). The Relative 
Strength and Weakness of Na- 
tions. Century, Jan. 

Lexis (W.). Ueber die Wahrschein- 
lichkeitsrechnung und deren An- 
wendung auf die Statistik. Jahrb. 
f. Nat. Oek., 13, Heft 6. 

Paget (Lady). Peasant Proprietors 
in Germany. Nat. Rey., Dec. 

UNSioincD. The Year's Trade: 
Reports on Production, Prices, 
and Distribution [with a review 
of trade, and tables of prices for 

5 receding years]. Bradstreet't, 
an. 8. 



Xra. NOT CLASSIFIED. 



Mobllbb (H. ). Der Niedergang der 
Volkswlrthschaft. Ein Vorsdilag 
zudessenRadicalerAbwehr. Ham- 
burg: Kramer. 8vo. pp.32. .50m. 



Reynaud (E.). Les Syndicats Pro- 
fessionnels, leur R61e Historjque et 
Economique. Paris: Guillaumin. 
18mo. pp.268. 3.60 fr. 



APPENDIX. 



THE ACQUISITION AND DISPOSITION OF THE PUBLIC 

LANDS. 
[See page 169.] 

The first three columns of Table L, on the next page, are based upon 
the statement of the areas of parcels of the territory of the United 
States In the Census Atlas of 1874, corrected by careful comparison 
with the revised areas which appear in the Compendium of the Tenth 
Census, 1413, and in Donaldson's Public Domain, 1100. The totals of 
the first and second columns agree with the census estimates. For the 
third column, the data for subtractions on account of reservations and 
private claims have been obtained from Donaldson, 60, 73, 82-85, 233, 
367-382, 405-400. The fourth column is found by subtracting for each 
year the total disposition (shown in acres in Table II. ) from the total 
area acquired (shown in Table I., column 3). 

As I have found no official statement of the disposition of the public 
lands year by year, Table II. has been compiled from information in the 
Beports of the Land Office and in Donaldson's Public Domain. The 
column of sales is derived solely from the reports in American State 
Papers, Public Lands, i., 82, ii., 442, Ui., 420, 450 (1787-1810); StaU 
Papers, 1820-21, vol. L, Doc. 8, p. 16 ; Senate Documents, 1823-24, 
vol. iU., Doc. 50, p. 0, and 18:53-34, vol. i.. Doc. 0, pp. 60-63, 82 (1820- 
1833); House Executive Documents for the years 1834-1845, 1847-40, 
1851-68, 1862-1883; Senate Executive Documents for the years 1846, 
1850, 1850-1861 (1833-1883). The total (102,584,116) is about 14,000,000 
less than the total found by adding the items of sales in Donaldson's 
Public Domain, 510. There is a discrepancy, therefore, between the 
yearly official reports and the semi-official statement of 1883. 

The table tallies with the last total I have found stated by the Land 
Office in 183:3. The three columns of grants, to individuals, to States, 
and for internal improvements, are based upon the principle that, so 
soon as Congress passed an act imder which a claim upon the govern- 
ment accrued, the land was disposed of. In many cases, particularly 
those of the swamp lands, railroad grants, homestead and tree claims, 
there will be extensive reversions. The second colamn, of grants to in- 
dividuals, is compiled from statements in Donaldson, with the addition 
of a few gifts shown by the Statutes at Large, The total is eight mill- 
ions more than Donaldson's, but I have included a number of grants 
which are not footed into his results. The third column is also derived 
from Donaldson, and agrees with his total within two millions. The 
fourth column overruns his total by a hundred millions. I have in- 
cluded all raUroad grants, though patents have not been issued. 

Albebt Bushkell Habt. 



252 



QUARTERLY JOURNAL OF ECONOMICS 



TABLE L 

BHOWIXG APPROXIMATELY THE 
ACQXnSITIOX OF THE PUBLIC LANDS OP THE UNITED STATES. 

1783-1888. 
[Areas in Square MUes.^ 





Total area un- 




Total area of 




Areas acquired 


der exclusiye 


Areas of land 


land under 




by the United 
States. 


iuriediction 
of the U.S. 


acqaired by 
the U.S. 


ownership of 
the U.S. 




819^16 








1783 




175,210 


168,250 


168,250 


1784 




229,626 


54,316 


222,6^6 


1785 




262,824 


33,142 


265,706 


1786 




267,789 


4,966 


259,015 


1787 




267,473 




268,292 


1788 


819,815 


967,473 


960,673 


958,999 


1789 Totals. 




309,423 




258,292 


1790 




267,473 




254,921 


1796 




301,673 


34,022 


288,927 


1798 


819,815 


301,573 


994,695 


987,303 


1800 Totals. 




301,669 




287,868 


1801 




361,716 


45,532 


333,108 


1802 


877,268 


1,198.224 


863,268 


1,194,827 


1808 


225,948 


1,198,224 


225.9W 


1,419,249 


1806 


9,790 


1,162,596 


9,290 


1,416,080 


1812 




1,126,686 




1,409,352 


1816 




1,080,346 




1,404,973 


1817 




1,024,346 




1,399,438 


1818 


64,240 


1,027,046 


62,276 


1,442,603 


1819 


1,986,061 


1,097,046 


1,491 ,€N>9 


1,438,385 

1,437,476 


1820 Totals. 




961.479 




1821 




906,266 




1,338,094 


1836 




847,861 




1,330,436 


1837 


1,986,061 


847,851 


1,491,€N>9 


1,313,790 


1840 Totals. 


262,290 


793,632 




1,284,366 


1845 


68,880 


1,028.949 


68,690 


1,337,807 


1846 


614,439 


1,672,938 


679,919 


1,890.013 


1848 




1,426,985 




1,750,869 


1860 


47,330 


1,474,316 


47,330 


1,754.614 


1863 




1,395,110 




1,601,906 


1868 




1,300,667 




1,590,369 


1869 


9,970,000 


1,300,557 


9,176,988 


1,578,899 


1860 Totals. 




1,218,939 




1,656,664 


1861 




1,109,234 




1,403,063 


1864 


631,409 


1,564,606 


631,400 


1,862,992 


1867 




1,461,247 




1,749,271 


1816 


3,501,500 


1,461,947 
1,461,947 


9,708,388 


1,705,938 


1880 Totals. 


»,501,500 


9,708,388 


1,645,015 


1883 Totals. 



APPENDIX 



253 



TABLE n. 

SHOWnCG APPROXIMATELY THB 
DISPOSITION OF THE PUBLIC LANDS OF THE UMITBD STATES. 

1783-1883. 
[Areas in Aores.'l 





Grants to indi- 


Grants to States; Grants for in- 






68. 


Tidoals (other 
than for Inter- 


(other than for 
internal im- 


ternal Im- 


Total 






proTements (to 
States and cor- 








nal improTe- 


proTements). 






ments). 




porations). 






.037,269 


23340 






1,060399 


1787 


450,727 


12,000 






462,727 


1788 


7y9S» 


3ff,040 






1,593,996 


Total to 1790. 




100 






100 


1792 




24,000 






24300 


1796 


48,666 


2,085320 






2,143,786 


1796 


38,365 


300 






88,666 


1800 


'4,917 








3,799,577 


Total to 180L 


360,281 


101,700 






461381 


1801 


340,010 




24316 




364326 


1802 


181,068 


36300 


773308 




991,476 


1803 


373,613 








873.612 


1804 


619,266 








619388 


1806 


473,212 








473312 


1806 


369,012 


13.120 






872,132 


1807 


213,472 








213.472 


1806 


231,045 








231,045 


1808 


235378 








235378 


1810 


288.930 








288,930 


1811 


436,932 


4,863,600 


833,164 




6,122396 


1818 


145,062 








146,062 


1813 


828,411 








828,411 


1814 


1,076,183 








1375.183 


1816 


1,473,679 


77332 


726,437 




2377,348 


1816 


1,929,142 




873364 




2302.806 


1817 


2,888,864 




1453,175 




3342.038 


1818 


6,110,628 


23,040 


1,017.974 




6,151,642 


1819 


784,608 




1391389 




2,076307 


1820(l8thalf). 
Total to 
1820-21. 


19,493^19 


7,960,199 


6,699,537 




33,375,991 


^<*^ 








303,404 


1820 (2d half). 


781,213 








781313 


1821 


801,226 








801326 


1822 


663,320 








653320 


1823 


1-2,469,5171 








P2,469.517| 


1821-1823 


749,323 


23,000 






7T2323 


1824 


893,462 








893,462 


1825 


848,062 


22308 






870390 


1826 


926,728 






791396 


1,718,424 


1827 


965,600 






833326 


1,799,428 


1828 


1,244360 








1344,860 


1829 


1329,734 


1,422,093 




29352 


3381379 


1830 


2,777357 








2,777367 


1831 


2,462342 


301380 






2,763,622 


1832 


8366378 


200,000 






4,056,278 


1833 


4358319 


86.000 






4,694319 


1834 


15334,430 


600,000 






16,434,430 


1835 


ao3743n 




2,138,117 




22312388 


1836 



254 



QUARTERLY JOURNAL OF ECONOMICS 



TABLE IT. (continued). 





Grants to Indi- 


Grants to States 


Grants for in- 






Sales. 


▼Idaals (other 


(other than for 
internal im- 


ternal im- 


Total 
disposition. 




than for inter- 


proyements (to 
States and cor- 






nal improTO- 


proTements). 






ments). 




porations). 






0,601,103 








6301.103 


1837 


?'S!'2I 






126,481 


3340338 


1838 


4,976,383 








4376,383 


1830 


2,236,880 








2336,890 


1840 


•3,043,997 


9,76ft,033 


8,830,654 


1,780,505 


113,490,119 


Total to 184L 


1,164,796 




73O6354 


259368 


9330.718 


1841 


1,129,218 


210,720 




24319 


1364,167 


1848 


1,605,264 


640 






1,606,904 


1843 


1,754,763 


144,131 






1.898.894 


1844 


1,843,627 




1397,967 


796,630 


4,638,124 


1845 


HS'S 




1,060,709 




3314,440 


1846 


2,521,306 


I33IO36O 






16.731.666 


1847 


1,887,553 






113,348 


2.000,901 


1848 


1,329,903 


1,280 


13331,443 




15,162,626 


1849 


1,405,839 


15,733385 


69398317 


8,761,ni 


80389,052 


1860 


1,846347 








1346.847 


1851 


1,553,071 


1,735376 




2314,711 


5.803.758 


1863 


1.083.495 


^^'SJ 


9354,079 


2382471 


13310,279 


1863 


7,035,735 


373,929 


92,160 




7301,824 


1864 


15,729.525 


33,993,790 


660.893 




6O3743O8 


1866 


9,227379 






14380,729 


23,787,608 


1856 


4,142,744 




3,098,n0 


6,118,460 


12350,904 


1867 


3304,908 


6,667 






8311375 


1868 


3,961381 




3,421366 




7383,447 


1889 


3,461,204 




3,929379 




7390.488 


1860 


161,796,816 


79,466,345 


113,969,531 


31,600,849 


389,896,534 


Total to 1861. 


1,465.604 




13361302 




143273O6 


1861 


*U'®^ 




9,600,000 


23304,001 


33348,851 


1862 


91354 


1.076,776 


3.068,231 


4.439,143 


8,674303 


1863 


432,734 


1347.170 


6344351 


47309.927 


66,734382 


1864 


557,212 


MS'!^ 


4,031328 


1328.000 


6,067383 


1865 


388394 


1.890,847 




84,686,076 


36,966.000 


1866 


766,620 


13^1312 




126,910 


2,718,042 


1867 


914341 


2,332,151 


3,480381 




6,727378 


1868 


2,899344 


2398,481 




104,060 


6,702406 


1860 


2,159315 


3,754303 




1,000,000 


6318,718 


1870 


1389382 


4,667365 


76,786 


18303318 


25,027390 


1871 


1370320 


4,596,435 




327,908 


6,293,658 


1872 


1,626.266 


3310336 






6,436,802 


1878 


1,041.345 


4340,796 






6382.140 


1874 


745.061 


2313,476 


3,761,636 




7360,172 


1875 


640,691 


8,467,730 






4,108,421 


1876 


754,789 


2,700308 






3,466307 


1877 


1,188,108 


6399392 






7388300 


1878 


622^73 


8,042386 






8,665.450 


1879 


860,740 


8324,192 






9374,932 


1880 


181 ,837,3^9 


140,594,039 


158,187,194 


169,930,099 


649,778,684 


Total to 1881. 


1387,617 


6,791.899 


230,400 




8,609,916 


1881 


8,611330 


8394,731 






12306361 


1882 


5347.610 


11372,844 






16,820,464 


1883 


199,^84,116 


167,483,506 


158,417,594 


169,930,099 


680,715,315 


Total to 1884. 



PROPERTY TAX OF THE CANTON DE VAUD. 

[We give below, from the Bulletin de Statistique et de Legislation 
Comparie for September, 1886, the text of the docmnents relating to 
the "progressive" property tax now in force in the Canton de Vaud, 
Switzerland. The principle on which the law rests is declared in Article 
19 of the cantonal Constitution of March 1, 1885 ; and the law itself, of 
which only the administrative sections are here omitted, is dated August 
21, 1886.] 



CONSTITUTION DU CANTON DE VAUD. 

Abticlb 10. — Les contributions publiques sent stabiles pour 
I'utilit^ gdn^rale. 

EUes font I'objet d'une loi annuelle. 

D est per9u un impdt sur la fortune mobili^re et sur le produit 
du travalL Pour cette perceptioo, la fortune imposable est divis^ 
en sept categories, payant dans la proportion de un k quatre, suivant 
una Shells de 1, 1^, 2, 2^, 3, d|, 4. La fortune imposable frapp^ 
dans les categories superieures est au bdn^fice du taux des categories 
inferieures pour la part correspondant k oes dernieres. 

Dans retablissement du chiffre de I'impdt sur le produit du travail, 
il est tenu compte des charges de famille. Le produit du travail et 
celui des usufruits doivent §tre frappds d'une mani^re distincte et 
k un taux inferieur, pour chaque categoric, k celui du capital de la 
categoric correspondante. 

L'impdt foncier demeure distinct des autres impdts. 

Le taux en sera abaisse. 

Si cet impdt est per9u par categories, la part de la propriete 
fonciere correspondant k la plus basse categoric de Timpdt mobilier 
sera frappee k un taux inf erieur k celui de cette demi^re. 

La defalcation des dettes hypothecaires est garantie aux proprie- 
taires fonciers domiciles dans le canton. 

Les lois sur le timbre et le droit de mutation seront revisees dans 
le sens d'une application plus generale et plus equitable des droits k 
payer sur les transferts de propriete mobilibre et immobili^re. 

Les lots d'impdt sur la vente en detail des boissons seront revisees 
dans le sens d'une repartition plus equitable de ces charges. 



256 QUARTERLY JOURNAL OF ECONOMICS 

LOI D'IMPOT 

8X7B LA FOBTUKE MOBILlilBE ET SUB LA FOBTUNB IMMOBILlilBE. 

TITRE I'». 
DISPOSmOKS G^m^BALBS. 

Abticle 1^. — n est per^u un impdt direct et distinct par oat^ 
gories: 

a) Sur la fortune mobili^re et sor le produit du travail, sous le 
nom d'impSt mobilier. 

b) Sur la fortune immobili^re, sous le nom d*in^t fonder. 

2. — La fortune imposable de chaque contribuable frapp^ dans 
les categories sup^rieures est au benefice du taux des categories infe- 
rieures pour la part correspondant k ces demi^res. 

8. — Le taux de Timpdt pour la plus basse cat^gorie de la fortune 
immobili^ devra toujours dtre inf^rieur k celui de la cat^gorie cor- 
respondante de la fortune mobili&re. 

4. — Chaque annde, lors de la presentation du budget pour Tannee 
suiyante, le Grand Conseil determine le taux de I'impdt k percevoir 
en application de la presente loi. 

TITRE n. 

IMP&T MOBILISB. 
CHAPITBB I*'. 

McUihre imposable. — Categories. — Taux. 
5. — L'impdt mobilier se per9oit annuellement sur les elements 
ci-apr^ : 

a) Sur la fortune mobili^re proprement dite ; 
h) Sur les rentes et usufruits ; 

c) Sur le produit du travail. 

6. — Pour la perception de cet impdt, les elements sur lesquels il 

est per9u sont repartis chacun en sept categories oomme suit : — 

a) Les fortunes et p<Mrtion8 de fortunes mobili^res comprises 

entre: 

1 franc et 25,000 francs forment la I'* categorie ; 

25,001 50,000 2« 

50,001 100,000 3« 

100,001 200,000 4« 

200.001 400,000 5« 

400,001 800,000 6« 

800,001 etau-dessufl 7« 



APPENVIX 257 

h) Les lentes et usufruits, ou portions de ces revenus, et les 
ressouroes procnr^es par le travail, on portions de oes ressources, 
compris entre : 

1 franc et 1,250 francs forment la 1** oat^gorie ; 

1,251 2,500 2* 

2,501 5,000 8« 

5,001 10,000 4« 

10,001 20,000 5« 

20,001 40,000 6« 

40,001 et au-dessus forment la 7* categoric. 

7. — Le tanz de I'impdt mobilier est fix^ soivant la proportion : 

1 ponr la I'* categoric. 8 pour la 5* cat^gorie. 
n 2« U 6« 

2 8« 4 7* 

2J 4« 

8. — Les ^Idments de I'impdt mobilier demenrent distincts, mais ils 
sont indissolublement li^s entre eux par la relation : 
1 ponr 1000 snr la fortune mobili^ proprement dite ; 
16 pour 1000 sur les rentes et usufruits ; 
et 8 pour 1000 snr le produit du travaiL 

CHAPITRB n. 

ConirUmabltB. 

9. — Doivent I'impdt mobilier : 

a) Les personnes rdsidant dans le canton : 

h) Les soci^t^ ciyiles et commerciales, industrielles et finand^res, 
les associations de tons genres, les communes, corporations, paroisses, 
oonfr^ries, les fondations, les caisses de families et en gdn^ral toutes 
les personnes juridiques qui out leur si^ge dans le canton ; 

c) Les personnes et les soci^t^ qui, ne r^dant pas ou n'ayant 
pas leur si^ge dans le canton, y ont un ^tablissement, une succursale 
ou 7 ezeroent une Industrie permanente. 

CHAPITRB lU. 

Impdt sur la fortune mobiliere. 

10. — La fortune mobili&re soumise k I'impdt comprend tons les 
biens meubles par leur nature ou par la determination de la loi, quels 
que soient leur situation et le revenu qu'ils proeurent. 

11. — L'^yaluation d^ la fortune mobili^re s'op^re par Tappr^cia- 
tion k leur yaleur ydnale de tons les biens meubles queloonques, 
oh^dail, marchandises, numeraire, actions, obligations, cr^anoes et 



! 



268 QUABTJSELT JOUBNAL OF ECONOMICS 

pi^tentioiiB de toQB genres, parts et apports de sooi^t^ polices d'as- 
suranoes et antres valears appr^cisbles. 

Le premier conrs cot^ en Janvier de I'ann^ comptable determine 
la valenr des titres cot^ k la Bourse. 

Les actions et parts de soci^t^ qui ont lenr si^ge en Suisse et 
dont le cours k la Bourse est sup^rieur k leur yaleur nominale ou 
qui rapportent un int^rfit sup^eur au 4 p. ^ de cette valeur, sont 
compt^es dans la fortune mobili^re du porteur ou du cr^anoier pour 
leur yaleur nominale seulement. 

L'avoir net (reserves et amortissements compris) des soci^t^ 
mentionn^es au paragraphe pr^c^dent qui ont leur si^ge dans le can- 
ton est compt^ dans la fortune mobili^re de oes soci^t^ pour tout 
oe qui excMe le capital sociaL 

12. — Les contribuables mentionn^ k la lettre e de I'article 9 sont 
soumis k I'impdt pour tout le capital mobilier affects au service de 
leur activity dans le canton. 

CHAPITBE IV. 

Impdts iur les rentes et usufruiti. 

18. — Get impdt est bas^ sur le montant des rentes et pensions, 
viag^res ou temporaires, dues annuellement au contribuable, ainsi 
que sur le produit annuel de rosufruit des biens meubles ou valeurs 
mobili^res dont il jouit. 

14. — Les meubles et valeurs mobili^res impioductifs soumis k 
usufruit sont estim^ k leur valeur v^nale et la rente It 4 p. ^ de 
cette valeur est compt^ comme produit de I'usufruit. 

15. — La subsistance et Tentretien qu'une personne re9oit d'autmi 
sont ^valu^ et assimilds aux rentes, k moins qu'elle ne les receive k 
titre d'aumdne ou d'assistance. 

CHAPITRE V. 

ImpSt sur le produit du travaiL 

16. — L'impdt sur le produit du travail est dt, annuellement par 
toutes les personnes, socidt^ et associations mentionn^es k I'article 9. 

17. — Get impdt se per9oit : 

a) Sur le produit de tout commerce, de toute Industrie et de 
toute exploitation, agricole ou autre, deduction faite du 
5 p. ^ des capitaux engages qui sont soumis k I'impdt 
cantonal; 



APPENDIX 259 

b) Sor le chiffre de ious traitements, Emoluments, honondres on 

salaires de tontes vocations on professions, lib^rales on 
manuelles, qnel qn'en soit le genre on la provenance. 

18. — Lorsqne le oontribnable re9oit en nature tout ou partde de 
la remuneration de son travail, la valeur de cette remuneration est 
estimee suivant les circonstances locales. 

CHAPITRE VI. 

Exemptions et deductions de Vimpdt, 
19. — Sont ezemptes de tout impdt mobilier : 
a) L']£tat et les etablissements cantonaux de secours publics ; 
h) Les hdpitaux et bourses des pauvres appartenant aux com- 
munes, aux bourgeoisies, aux paroisses et aux con&eries ; 

c) Les societes et institutions qui en sont exon^rees par une 

convention obligatoire pour r£tat ou par un acte legislatif 
special. 

20.— Les etrangers k la Suisse qui n'exercent aucun commerce, 
aucune profession ou aucune Industrie dans le canton et qui n'y sont 
pas nes ne sont soumis k Timpdt qu*apr6s deux ans de residence et 
seulement pour la fortune mobili^re qu'ils possedent dans le canton. 

Apr^ dix ans de residence, les etrangers k la Suisse sont soumis 
k rimpdt comme les nationaux. 

21. — Sont deduits pour revaluation de la fortune mobili^re sou- 
mise k rimpdt : 

a) Les produits du sol, les loyers et fermages et les recoltes de 
Tann^ precedente, deraeures en la possession du proprie- 
taire, de Tusuf ruitier, du f ermier ou colon partiaire ; 

6) La valeur du mobilier par nature, des vdtements et du coucher 
necessaires k la f amille, des ustensiles de cuisine, des outila 
et instruments, si elle n'atteint pas 5,000 francs, ou oe 
montant, si elle le depasse. 

22. — Sont deduits du produit brut du travail : 

a) Les depenses necessaires k Texploitation du commerce ou de 
rindustrie ou k Texercice de la vocation ou profession ; 

h) Comme charges de famiUe, les frais d'entretien, k raison de 
400 francs pour le chef de famille, pour sa femme et pour 
chacun de ses descendants mineurs, ainsi que pour chacune 
des personnes auxquelles le oontribnable foumit des ali- 
ments en execution des obligations qui lui sont imposees 
par la loi civile. 



I 



260 qUABTERLY JOURNAL OF ECONOMICS 

28. — Les dettes du contribuable qui ne p^uvent §tre d^falqaees 
de I'impdt foncier sont dddaites de la fortune mobili^re soumiBe k 
rmpdt. 

Si la somme de ces dettes d^passe la fortune mobili^re imposable, 
le 5 p. ^ de I'excddent est ddduit du montant des rentes et usufruits. 

Siy enfin, cette deduction ne pent 6tre effeotu^e en tout ou en 
partde du montant des rentes et usufruits, la part de ce 6 p. ^ non 
deduite est double et soustraite du produit du travail. 

Les dettes oonsistant au service d'une rente annuelle sont d^uites : 

1^ De la fortune mobilidre pour un capital ^gal k seize fois leur 
montant ; 

2? Des rentes et usufruit d'abord, puis du produit du travail, s'il 
7 a lieu, pour la part de la rente qui n'a pu ^tre deduite de la fortune 
mobili^re. 

24. — L'usufruitier est au benefice des dispositions des articles 21 
et 23 pour les biens dont il a Tusufruit. 

CHAPITRE VII. 

Dispositions eommunes. 

25. — L'impdt mobilier est dii des le 1« Janvier de Tann^ compt- 
able. II est payable au lieu de la residence du contribuable h cette 
date. 

26. — L'impdt de I'annce comptable est bas^ : 

Pour la fortune mobiliere, sur I'^tat de cette fortune au commence- 
ment de Tannde ; 

Pour les rentes et usufruits et les ressources procur^es par le 
travail, sur le produit de Tannde prdcddente. 

27. — Le contribuable qui exerce un commerce, une Industrie ou 
nne profession dans un lieu autre que celui de sa residence est soumis 
It l'impdt mobilier : 

Au lieu de sa residence, sur le montant de sa fortune mobili^re et 
de ses rentes et usufruits ; 

Au lieu oil il exerce sa profession, son commerce ou son Industrie, 
sur le produit de son travail. 

28. — Celui qui, dans le courant de I'annde, vient r^sider dans le 
canton ou cesse d'y resider, est tenu de payer l'impdt mobilier pro- 
portionellement k la dur^e de son s^jour dans le canton. 

La residence d'une durce inf^rieure k trois mois, n'astreint toute- 
fois pas k l'impdt. 



APPENDIX 261 

29. — L'impdt sor lea cr^ances et rentes ne peut, ni directement, ni 
indiiectement, dtre mis k la charge da ddbiteor. 

30. — La fortune mobili^re da mari, celle de sa f emme non sdpar^e 
de biens et celle de ses descendants mineurs sont consid^rdes comme 
an seal toat devant l'impdt mobilier et reunies poar faire Pobjet 
d'one seale declaration par la personne qui a la jouissance de ces 
fortunes et determiner la categoric au taux de laquelle elles doivent 
l'impdt. 

n en est de m§me pour les rentes et usufruits d'une part et pour 
le produit du travail d'autre part. 

31. — Les mineurs dont les biens ne sont pas assujettis k l'impdt 
.avec ceux de leur p^re ou mere sont soumis k l'impdt au lieu dela 
tutelle, et les autres personnes sous tutelle au lieu oii, du consente- 
ment de I'autorite tuteiaire, elles ont leur residence. 

32 — Les contribuables en scjour ou transfer's dans un hdpital, 
dans one maison de sante ou dans une maison de detention, conti- 
nuent k 6tre soumis k l'impdt au lieu oti ils y etaient astreints ayant 
leur entree dans ces etablissements. 



CHAPITRB VIII. 

Mesures d*exdcuiion, 

[This chapter provides for a declaration of taxable proi)erty and in- 
come to be made to commissioners by every tax-payer, for assessment in 
case of neglect, for the preparation of tax-lists by the commissioners 
with a right of appeal from their action to a central commission, and for 
penalties in case of any fraudulent declaration. It is to be observed 
that all officers concerned in the execution of the law '' sont tenus de 
garder le secret sur les renseignements que les contribuables peuvent leur 
donner pour justifler leurs declarations ou reclamations."] 

CHAPITRE IX. 

Dispositions transitoires. 

66.— Les etrangers k la Suisse residant aotuellement dans le canton 
de Vaud, mais qui n'y sont pas nes ou qui n'y ezercent auoune pro- 
fession, aucun commerce ou aucune industriei sont oonsideres comme 
ne residant dans le canton que depuis I'entree en vigueur de la 
presente loi. 

Us sont, par consequent, pour dix ans encore au benefice de la dis- 
position de I'artiole 20, V alinea. 



262 QUARTERLY JOURNAL OF ECONOMICS 

Hb oontinuent par contre k dtre soumis k I'impdt, pour la fortune 
mobili^re et les rentes et usofruits qu'ils possMent dans le canton, 
s'ils 7 r^ident depuis deux ana. 

67. — Les ann^es ant^eores k Tentr^ en vigoenr de la pr^aente 
loiy dnrant lesquelles on contriboable n'a pas fait de declaration, Ini 
sont compt^es poor Tapplication de Particle 44. 

TITRE m. 
imp6t foncibb. 

68. — L'impdt f oncier est dt annuellement, k partir da 1^ Janvier, 
sor la valeor an cadastre de tons les immeubles bfttis on non b&tis du 
territoire Yaudois, sons d^action des dettes hypoth^caires, dont la 
defalcation est aatoris^e par le loL 

6d. — Poor la perception de oet impdt, les fortunes immobili^res 
des contribnables sont r^parties en trois categories, comme suit: 

Les fortunes immobilieres ou portions de oes fortunes comprises 
entre 

1 franc et 25,000 francs f orment la l** categorie. 

26,001 100,000 2« 

100,001 etensus 3« 

70. — Le taux de I'impdt f oncier est fixe par la loi annueUe suiyant 
la proportion : 

1 pour la I'* categorie. 
1* 2« 

2 8* 

71.— La categorie au taux de laquelle doit payer la fortune immo- 
bili^re d'un contribuable est determinee par le sommaire de la valeur 
au cadastre de tons les immeubles que ce contribuable pent posseder 
dans le canton, oil qu'ils soient situes et en quoi qu'ils consistent. 

72. — Les fortunes immobilieres du man, de sa femme non separee 
de biens et de ses enf ants mineurs sont considerees comme un seul 
tout devant I'impdt et reunies pour determiner la categorie au taux 
de laquelle elles doivent I'impdt. 

78. — La fortune immobili^re soumise k usufruit est egalement 
jointe k celle que I'usufruitier pent posseder, pour determiner la cate- 
goric au taux de laquelle ces fortunes doiTcnt I'impdt. 

74. — L'impdt est per9u au lieu oh le contribuable a sa residence, 
s'il habite dans le canton, et au district dans lequel les immeubles 
sont situes, s'il habite hors du canton. 



APPENDIX 



268 



Si le oontribuable domicilii hors du canton poss^de des im- 
meubles dans plosienn distriots, la perception de I'impdt s'op^re an 
district od sont sitn^ les immeubles ayant la plus grande valenr 
d'aprto le cadastre. 

75. — Sont exempts de I'impdt f oncier : 

a) Les immeubles appartenant k I'^tat; 

h) Les ^gUses et cimeti^res appartenant aux commnnes et les 
b&timents pour hdpitaux appartenant aux communes et aux sooi^t^ 
reconnues par I'^tat conmie personnes morales ; 

c) Les immeubles qui en sont exon^r^ par des actes Idgislatifs 
sp^daux. 

TITRE IV. 

DISPOSITIONS FINALES. 

76.— La perception de Timpdt se fait par les receveurs, conform^ 
ment aux lois et r^glements sur la rentrde des contributions publiques. 

77.— Le Conseil d*]£tat pourvoit par des arrSt^ r^glements et 
drculaires, k tons les details d'ex^ution de la-prdsente loi. 

78. — Sont abrog^ toutes les dispositions contraires k la prdsente 
loi et notamment : 

!<> La loi d'impOt sur la fortune mobilifere du 21 aoClt 1862 ; 
29 La loi modificatiye du 20 ddcembre 1877. 

79.— Le Conseil d'etat est charge de la publication de la prdsente 
loi pour dtre ex^utoire d^ le 1^ Janvier 1887. 



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141 Franklin Street, Boston* 



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4 



Contents of No. r, Octobkr 15, 1886. 

L THE REACTION IN POLITICAL ECONOMY, CbaH«« F. Dunbar 

IL PRIVATE MONOPOLIES AND PUBLIC RIGHTS, Arthur T. Hadley 

IIL SILVER BEFORE CONGRESS IN iSSa, - - S. Dana Uortoti 

NOTES AND MEMORANDA. 

Sitver as a Regulator of Faces. 

The Aritlim^tic, Geometric* Jind Harmonic Mcan^ 

Legialation for Labor Arbitration. 

CORRESPONDENCE : Letter from Faria^ . * . Arthtir Mactfia 
RECENT PUBLICATIONS UPON ECONOMICS. 

Appendix 
WAGNER ON THE PRESENT STATE OF POLITICAL ECONOM 
PRICES IN IRELAND. 



« 



Contents of No. 2, Januakv 15, JS87. 
AN HISTORICAL SKETCH OF THE KNIGHTS OF LABOR, 

CarroU D. WrigEt 




n THE DISPOSITION OF OUR PUBLIC LANDS, 

IIL THE SOUTH-WESTERN STRIKE OF 1886, 
NOTES AND MEMORANDA. 

Marsh air s Theory of Value and Distribution. 
Some Ob}ectvons to Profit-sharing. 

RECENT PUBLICATIONS UPON ECONOMICS. 

Appendix* 
TABLHS RELATINO TO THE PUBLIC LANDS. 
THE PROPERTY TAX OF THE CANTON DE VAUD. 



'Albert BuBbnell Bare^ 
:>F 1886, F W TaussJH 

bution. ^^^H 

OMICS. ^^H 

LANDS ^^1 

m DE VAUD. ^^H 



THE 



QUARTERLY JOURNAL 



ECONOMICS 



APRIL, 1887 



THE SOURCE OF BUSINESS PROFITS. 

In the Fortnightly of September, 1879, Professor Henry 
Sidgwick, in reviewing the recent literature of the wages 
controversy, said, " It seems to me that, while Professor 
Walker's argument gives a coup de grdce to the wages 
fund theory,* it supplies no substitute for it ; it leaves us 
with no theoretical determination whatever of the average 
proportions in which produce is divided between labor and 
capital." 

I confess that at the time this seemed to me a hard 
judgment. The current political economy had for more 
than a generation declared that the measure of possible 
wages was found in existing capital ; that the average rate 
of wages was wholly determined by the ratio between the 
amount of capital and the numbers of the laboring class ; f 

*For both the natural history and the literary history of this doctrine, 
reference may be made to an article by the present writer in the North 
American Review for January, 1875. 

t '* The oiroolating ci4>ital of a oouitry is its wage-fond. Hence, if we 
desire to calculate the ayerage money-wages reoeiyed by each laborer, we haye 



i 



266 QUARTERLY JOURNAL OF ECONOIHCS 

that this rate was thus altogether irrespective of the indus- 
trial quality, the skill, energy, temperance, frugality, of 
the laboring population at the time ; that this rate was 
also irrespective of the eflforts of the laboring class, as 
a body or individually, to better their own condition, it 
being explicitly taught that no less than the whole amount 
of possible wages would or could be disbursed under the 
law of competition,* and that, consequently, if the laborer 
did not seek his interest, his interest would seek him, and 
would find him.f 

I confess that it seemed to me that to demonstrate that 
the measure, or, if you will, the limit, of possible wages is 
to be found in the estimated value of the product ; that, 
as the product is immediately affected by the industrial 
quality of the laborer, wages cannot be uninfluenced by 
anything that affects the industrial quality of the popula- 
tion ; that, again, the rate of wages cannot be irrespective 
of the efforts of the laboring class, as a whole or individ- 
ually, to improve their condition and to reach their best 
market, since, if the laborer will not seek his interest, he 
must, in greater or less measure, lose his interest, J while, 

simply to divide the amount of this capital by the nmnber of the laboring 
population/^ Fawcett, The Economic Position qfthe British Laborer, 

** The demand for labor consists of the whole circulating capital of the 
country. . . . The supply is the whole laboring population.*' J. S. MUl, Fori- 
nigkdy Review, May, 1869. 

* ** That which pays for labor in every country is a certain portion of act- 
ually accumulated capital, which cannot be increased by the proposed action 
of government, nor by the influence of public opinion, nor by combinations 
among the workmen themselves. There is, also, in every country a certain 
number of laborers ; and this number cannot be diminished by the proposed 
action of government, nor by public opinion, nor by combinations among 
themselves. There is to be a division now among all these laboren of the 
portion of capital actually there present.'* Professor A. L. Perry, Political 
Economy, 

t *^ If capital gets a relatively too large reward, nothing can ^interrupt the 
tendency that labor shall get, in consequence of that, a larger reward the next 
time." Professor Perry. 

^* The wealth so withdrawn from wages would, in the end, and before long, 
be restored to wages." Caimes, Leading Principles of Political Economy, 

I *^ If laborers and employers do not, in fact, whatever the cause, resort 
to the best market, then injuries may be inflicted on labor |or |on capital, and 



THE 80UBCE OF BUSINESS PBOFTTS 267 

on the other hand, it is often, if not always, possible for 
the laboring classes, through a more active, searching, and 
persistent competition, to secure for themselves a larger 
share of the product of industry ; to demonstrate further 
that there may be in industry a gain which no man loses, 
just as there may, in a contrary case, be a loss which no 
man gains; and that thus wages might conceivably be, 
and in practice often are, enhanced without diminishing 
profits,* — I confess it seemed to me that to demonstrate 
these things, as I thought had been done in my treatise 
on the wages question, was to present something like a 
proper philosophy of wages, deserving more of recognition 
than is contained in the sentence quoted from Professor 
Sidgwick. Subsequent reflection, however, convinced me 
that this most eminent of critical writers in political 

no economical principle whatever wiU operate to secure redress. ... If the 
blow, in its suddenness or its seyerity, bears more than a certain ratio to the 
power of resistance, the chances are many, human nature bein^r what it is, 
that the waires class will succumb, — that is, that they will accept the harder 
terms imposed upon them ; and, on the one hand, through a less ample or 
nourishing diet and meaner conditions, and, on the other hand, through a loss 
of self-respect and, perhaps, the contracting of distinctly bad habits, they 
will become imable to render the same amount and quality of service as 
before. This result being reached, not only is there not a tendency in any 
economical forces to repair the mischief, but even the occurrence of better 
times and new opportunities would not serve to restore the shattered indus- 
txial manhood.'* Walker, The Wages Question. 

* ^* The human stomach is to the animal frame what the furnace is to the 
steam-engine. It is there the force is generated which is to drive the machine. 
The power with which an engine will work will, up to a certain point, increase 
with eveiy addition made to the fuel in the furnace ; and, within the limits of 
thorough digestion and assimilation, it is equally true that the power which 
the laborer will carry into his work wiU depend on the character and amount 
of his food. What the employer will get out of his workman will depend, 
therefore, very much on what he first gets into him. . . . That a large portion 
of the wage-receiving class are kept below the economic limit, of subsistence 
there can be no doubt. ... In cases where the subsistence of the laborer is 
below the economical maximum, a rise of wages may take place without a loss 
to profits.'* Walker, The Wages Question. Not only without a loss, but, as 
elsewhere appears, with an actual gain. The same, it is shown, may be true 
of an increase of wages, which gives the laborer more adequate clothing and 
shelter, or which increases his interest in his work, or which results in ex- 
penditures for education, cultivation, moral improvement, etc. 



268 QUABTEBLT JOURNAL OF ECONOMICS 

economy was right in his demand for something more 
than had then been offered, with a view to the construc- 
tion of a complete and consistent theory of the distri- 
bution of wealth ; and that, while the several successive 
propositions which have been recited above were all im- 
portant, and indeed essential to such a theory, the key- 
stone of the arch still remained to be hewn from the rock 
and put into its place. 

In close connection with the sentence which has been 
quoted, Professor Sidgwick goes on to say, regarding Pro- 
fessor Jevons's proposition,* that the wages of a laboring 
man are ultimately coincident with what he produces, 
after the deduction of rent, taxes, and the interest of capi- 
tal : " It is to be observed that it does not attempt to set- 
tle the distribution^ of produce between employers and 
employed, except so far as the employer's share consists of 
interest; that is, it does not help us to determine what 
Mill calls 'the wages of superintendence.' Now, it is just 
this latter that in our practical discussions usually appears 
the most prominent element of the problem. What Eng- 
lish workmen grumble at is not the rate of interest, but 
the undue extra profits which they suppose the employer 
to be making." 

Reflecting upon the view thus presented, I came to feel 
that something more was wanted ; and, in 1883, 1 brought 
out, in my treatise on Political Economy, a theory of 
the origin of business profits, which it is the purpose of 
this paper more fully to state and explain. 

It is not to be disputed that, if this theory be a correct 
one, it supplies just what was lacking, and yields, in con- 
junction with well-approved theories of rent, interest, and 
wages, a complete and consistent body of doctrine regard- 
ing the distribution of wealth. It is not to be disputed 
that we have, in this view of business profits, the key- 
stone to bind together the other members of the arch in a. 
symmetrical whole, spanning the entire field of distribu- 

• Theory qf Political Economy, 1871. 



THE 80UBCE OF BUSINESS PROFITS 269 

tion. But it is competent to any one to dispute the cor- 
rectness of this theory regarding the employer's proper 
share of the produce, and time has not yet been given for 
such a discussion of the doctrine as shall decide whether 
it is to be approved or rejected by the body of economists. 
The first stages of the discussion have certainly not been 
more unfavorable towards the view presented than was 
reasonably to be anticipated. ^ 

We shall best approach our present subject by inquir- 
ing what would be the share of the produce going to the 
employer, as such,* irrespective of the proper interest on 
capital (of which the employer himself may or may not 
be the owner), in case the body of employers constituted 
a distinct class, either naturally or artificially defined, 
all of whose members were equal among themselves in 
the point of business abilities and business opportunities. 
Let our hypothesis be clearly understood. We assume, 
first, that there is in a given community a number of 
employers, more or fewer, who alone are, by law or by 
custom, permitted to do the business of that community 
in banking, in manufacturing, in trade, in transportation, 
or else who are so exceptionally gifted and endowed by 
nature for performing this industrial function that no one 
not of that class would aspire thereto or would be con- 
ceded any credit or patronage should he so aspire. Sec- 
ondly, we assume that neither in point of ability nor of 

* In his Principles qf Political Economy (1883), Profeflsor Sidgwiok says 
(p. 340) that his attention was fiist oaUed to this distinction hy my work on 
Wages (1876). Bat the distinction was clearly drawn by my father, the late 
Amasa Walker, in his Science qf Wealthy published in 1866 ; while the French 
writers have always recogrnized profits and interest as separate shares in dis- 
tribution. J. B. Say treated Adam Smith's neglect of the entrepreneur as 
creating a serious hiatus. All of Say's successors down to Couroelle-Seneuil 
haye dwelt strongly on the importance of that industrial functicm. That in 
England, where the *^ master of industry " has deyeloped in his fullest pro- 
portions and his largest dimensions, this function should have been habit- 
ually orerlooked, will always seem very strange. The fact goes far to justify 
Professor Jevons's remark, that, in the matter of wages, **our English 
economists have been liying in a fool's paradise." "The truth," he adds, 
*'' is with the French school." 



270 QUABTEBLY JOURNAL OF ECONOMICS 

opportunity has any one member of this class an advan- 
tage as against another, each being the precise economic 
equivalent of every other, — all being, we might say, 
exact copies of the type taken, whether that should in- 
volve a very high or a comparatively low order of indus- 
trial power. 

Now, in the case assumed, what would be true of busi- 
ness profits, the remuneration of the employing class? 
1 answer that, if the members of this class were few, they 
might conceivably effect a combination among themselves; 
and, through possessing a natural or artificial monopoly 
of a force absolutely indispensable to the conduct of 
industry, they might fix a standard for their own remun- 
eration, which should be the price for which they would 
consent to carry on the business of that community. Ifc 
however, the community were a large one, and if the 
business class, as we have defined it, were numerous, such 
a combination to determine profits would be impracticable. 
Rivalry, jealousy, greed, personal quarrels and pique, or 
suspicion of foul play would soon break up the most elab- 
orate scheme ; and the members of the business class would 
begin to compete with each other. From the moment 
competition set in, it would find no natural stopping place 
until it had reduced profits to that minimum which, for 
the purposes of the present discussion, we call nil. 

What, in the case supposed, would be the minimum of 
profits? I answer: This would depend upon an element 
not yet introduced into our problem. The ultimate mini- 
mum would be the amount of profits necessary to keep 
alive a sufficient number of the employing class to trans- 
act the necessary business of the community. Whether, 
however, competition would force profits down to this 
low point would depend on the ability or inability of the 
members of the employing class to escape into the labor- 
ing class. We have supposed that laborers could not be- 
come employers; but it does not follow that employers 



THE SOURCE OF BUSINESS PROFITS 271 

might not become laborers and earn the wages of laborers, 
in case their remuneration as employers should be re- 
duced by competition below the current rate of wages. 
If we supplement our hypothesis by assuming that the 
body of employers have such an industrial resort or 
escape, we should then have the minimum rate of profits 
determined by the current rate of wages ; and it would 
come about that an employer would receive a remunera- 
tion equal to that which he might be able to earn as a 
laborer. Less than this he would not receive, because 
he would prefer to serve in the other capacity. More 
than this he would not receive, because the unceasing 
competition of his fellows would wrest from him every 
fraction of any excess that might remain. It would not 
matter in the least that the services which the employer 
rendered were, in his view or anybody else's view, of a 
more highly intellectual character or morally more de- 
serving than those rendered by the laborers. We are 
accustomed to the spectacle of work involving more 
than ordinary moral and intellectual qualifications, and 
even work absolutely indispensable to the life and health 
of others, compensated at rates far lower than those paid 
for some mere knack or skill or physical adaptation to 
the rendering of a service demanded only by a whim or 
fancy of the consumer, which may even be positively del- 
eterious to health or character. It is all a question of 
supply and demand; and, in the case assumed, the re- 
muneration of the employing class, whatever their moral 
or intellectual qualifications, as compared with those of 
the rest of the community, would infallibly be reduced 
through the normal effect of competition to a level with 
the remuneration of the laboring class. It would then 
become a matter of economic indifference whether any 
man served the community as laborer or as employer. In 
this event, profits would become nil; that is, there would 
be no profits as distinguished from or preferred to wages. 



272 QUARTERLY JOURNAL OF ECONOMICS 

Leaving now our imaginary society, and returning to 
the actual world of industry, do we find anything corre- 
sponding to the result we have last reached? Do we find 
employers of labor earning profits which are no greater 
than the wages of labor? I answer that in every large 
community there are many such employers ; and in every 
branch of business in a large community there are some 
such employers, — men who, by their conduct of the in- 
dustrial enterprises of which they have come, no matter 
how, into control, realize no remuneration greater than 
that received by the laboring class.* 

Indeed, we may take a step beyond, and say that in 
every large community there are many employers, and in 
every branch of business some employers, whose conduct 
of business results only in loss. What with the initial in- 
vestment of the employer's own inherited or previously 

*At this point, my argtiment comes very close to that of Professor 
Arthur Hadley, in his article on ** Profits *' in Lalor^s Cydojmdia qf Political 
Science^ which, though published later than my treatise of 1883, was jret 
written independently of it. Indeed, our lines of reasoning are nearly parallel 
throughout. Professor Hadley says: **The minimum of net profits (i.e., 
throwing out interest) is roughly determined in the same way as the minimum 
of wages. The business man, like the workman, must make a liTing accord- 
ing to his own standards of comfort and decency. But the i^>plioation of this 
principle to profits is less simple than its application to wages. In the latter 
case, we hare a large body of men ready to work for a certain remuneration, 
but liable to become a burden on society if the pay sinks below that amount. 
In business, the margin of difference between what will induce men to begin 
and what will compel them to stop, is far greater. No man will begin business 
unless he expects to make more as a capitalist [qu, employer?] than he was 
preyiously earning as book-keeper or foreman. But, once engaged in business, 
he cannot go out of it when he fails to make the expected profit, without 
sacrificing a great part of his invested capital and losing the chance of ever 
again doing business on the same terms. . . . Thus, we have not a fixed, but a 
varying, minimum: in times of expanding credit and increasing production 
on a level with the wages of a superintendent, foreman, or head clerk, in the 
same industry ; in times of diminished credit and production falling away to 
nothing, or less than nothing. . . . Now, the price of goods is approximately 
determined by the cost of production of those produced at the greatest disad- 
vantage ; that is, by men earning this minimum of profits. . . . Skill in organ- 
izing labor, quickness in utilizing improvements, and sagacity in foreseeing 
high prices are qualities which give the capitalist [qu. employer ?] the power 
of raising his own profits almost indefinitely above the minimum.'* 



TEE SOURCE OF BUSINESS PBOFITS 273 

accumulated means; what with the loan of funds by 
friends or relatives ; what with the discount of commercial 
paper, under more or less of uncertainty as to the financial 
standing of drawers or indorsers ; what with credit given 
by dealers for materials or supplies, and in a less degree 
by laborers for their work rendered, — it happens not infre- 
quently that men carry on large business, not only with 
no resulting profit, but at an actual loss to themselves or 
to others. 

Just above the grade of employers we have described 
are found many employers in every large Qommunity, and 
some in every branch of business, who realize, at best, 
but very moderate profits. Even at the end of a long 
career, these men are found to have accumulated little or 
nothing. They have, indeed, lived more comfortably 
than the more favored of the wage-receivers; but for 
this they have paid a high price in perpetual anxiety 
concerning the state of the market, in frequent fears of 
commercial misfortune, and perhaps at times in much 
embarrassment and much humiliation. All things con- 
sidered, their economic condition has been little, if any, 
superior to that of the better members of the hired class, 
— such as book-keepers, cashiers, clerks, superintendents, 
or overseers. Even if we threw out of account those 
who realize literally no profit at all, or sustain an actual 
loss, we should still have, in the grade of employers at 
present under consideration, a class whose profits might, 
for the purposes of the present discussion, be taken as 
m7, — amounting, that is, to little, if anything, more than 
the same persons might hope to receive in the employ of 
others, and that, too, with much less of .mental pressure 
and nervous wear and tear. Taking our stand on this 
line, we see the body of employers, viewed with respect 
to the remuneration received for the conduct of business, 
rising upwards by insensible gradations, but through long 
distances, until we come to those rarely g^ted masters of 



274 QUARTERLY JOURNAL OF ECONOMICS 

industry who are capable of managing the largest enter- 
prises with uniform success, and who seem to turn every- 
thing they touch into gold. Looking at the better em- 
ployers of whatever grade,* whether the shrewd, strong, 
sensible, watchful men of business who achieve a decided 
success, or the sagacious, resolute, and daring spirits who 
are by all recognized as masters in their respective trades 
or avocations, or the men with a high genius for com- 
mercial combinations, with a great power over the minds 
and wills of others, and with an insight into the state of 
the market and the conditions of trade which approaches 
foresight, we note that.they^pay wages, as a rule, equal 
to those paid by those employers who realize no profits 
or even sustain a loss ; and that, indeed, if regularity of 
emplojrment be taken, as it should be, into account, the 
employers of the former class pay really higher wages 
than the latter class. We note, further, that the success- 
ful men of business pay as high prices for materials and 
as high rates of interest for the use of capital, if the 
scale of their transactions and the greater security of 
payment be taken, as it should be, into account. 

Whence, then, comes the surplus which is left in the 
hands of the higher grades of employers, after the pay- 
ment of wages, the purchase of materials and supplies, 
the repair and renewal of machinery and plant? I an- 
swer. This surplus, in the case of any employer, repre- 

*The French writers in eoonomios have, with mnoh insight and skill, 
eharacterized the succeesful employer of hnsinees. See the article ** Entrepre- 
neurs " in Sandelin^s Repertoire G^n^ral (tAxmomie Politique^ also the article 
^^Entrepreneur d'Industrie ** in Goquelin and Quillaumin^s DtcHomtaire de 
Vtkonomie Politique, M. Dunoyerf in his Libert^ du Travcul, has given a strik- 
ing picture of the ideal employer. M. Joseph Gamier says, ^* L*entrepreneur 
est Tagent principal de la production ; il y oonsacre son activity ; il y sacrifie 
son repoe ; il y ayenture son avoir ainsi que les capitaux d^autrui ; il pent y 
compromettre sa r^utation et son honneur/* M. Courcelle-Senenil, in his 
Operations de Banque^ has thus grouped the qualities of the successful captain 
of industry : ** Du jugement, du bon sens, de la fermet^, de la d^ision, una 
appr^iation froide et calme, une intelligence ouverte et vigilante, pen 
d^imagination, beaucoup de m^oire et d^applioation/' 



THE 80UBCE OF BUSINESS PROFITS 275 

sents that which he is able to produce over and above 
what an employer of the lowest industrial grade can pro- 
duce with equal amounts of labor and capital. In other 
words, this surplus is of his own creation,* produced 
wholly by that business ability which raises him above 
and distinguishes him from the employers of what may 
be called the no-profits class. 

This excess of produce has not, speaking broadly, been 
generated by any greater strain upon the nervous or mus- 
cular power. Indeed, it may, as a rule, be confidently 
stated that, in works controlled by men who have a high 
power of administration and a marked degree of execu- 
tive ability, where everything goes smoothly and swiftly 
forward to its end, where emergencies are long foreseen 
and unfavorable contingencies are carefully guarded 
against, where no steps have to be retraced, and where 
nothing ever comes out wrong end foremost, there is 
much less nervous and muscular wear and tear than in » 
works under inferior management. The excess of prod- 
uce which we are contemplating comes from directing 
force to its proper object by the simplest and shortest 
ways; from saving all unnecessary waste of materials and 
machinery; from boldly incurring the expense — the 
often large expense — of improved processes and appli- 
ances, while closely scrutinizing outgo and practising a 
thousand petty economies in unessential matters; from 
meeting the demands of the market most aptly and in- 
stantly; and, lastly, from exercising a sound judgment 
as to the time of sale and the terms of payment. It is 
on account of the wide range among the employers of 
labor, in the matter of ability to meet these exacting con- 

* '* The earnings of management of a manofactaier represent the Talne 
of the addition which his work makes to the total produce of capital and 
indnstry/' The Economics of Industry^ by Professor Alfred and Mrs. Mary 
P. Marshall. If this remark is to be taken literally and strictly, I do not see 
why it does not express precisely the same view of the sonroe of profits as is 
here sought to be set forth. In that case, I gladly yield all claim to priority 
in its statement. 



276 QUARTERLY JOURNAL OF ECONOMICS 

ditions of business success, that we have the phenomenon 
in every community and in every trade, in whatever state 
of the market, of some employers realizing no profits at 
all, while others are making fair profits ; others, again, 
large profits ; others, still, colossal profits. Side by side, 
in the same business, with equal command of capital, 
with equal opportunities, one man is gradually sinking a 
fortune, while another is doubling or trebling his accumu- 
lations.* 

Assuming, for the present, the correctness of this view 
of the origin of profits, let us proceed to inquire how the 
employer's remuneration, thus determined, stands related, 
first, to the price of produce, and, secondly, to the wages 
of labor. 

Well-approved principles of political economy will not 
allow us to question that in this view profits do not enter 
at all into the price of produce. The normal price of any 
kind of goods is determined by the cost of that last con- 

*Saiideliii*8 Repertoire enumerates fire chief means by which the employer 
may increase his profits, as follows : — 

^^ 1. A rendre see prodoits k nn priz snp^iear k oeloi quails oofttident 
autrefois ; s^il ne r^ossit pas snr son maroh€, il poorra pent-dtre r^issir sor on 
autre, oil les prix seront plus ^ev^. 

** 2. A perfectionner des travaox an point qn^en r^uisant le nombre de 
ses onyrieis, les capitaux enga^^ la oonsommation des mati^res premieres, 
et oelle des instroments et ontils, il puisse oontiniter k produire tonjonrs la 
mdme quantity. 

**3. A se procurer les mati^res premieres k meUlenr marohd, on k em- 
ployer des mati^res d^nn priz moins ^er^. 

^^4. A diminuer, s^il le pent, les salaires, le fermafl^e, et Tint^^t des 
capitaux ^u^il emploie. 

** 5. A abr^^r le temps qui s^^oule entre les premieres d^enses de Tentre- 
prise et T^oque de leur remboursement, en acc€16ant les travaux, paroe 
qu'ainsi il peut faire des Enemies sur Tint^rSt de capital circulant.** * 

Of these means of increasing: profits, the editor writes : — 

** n est ^dent qu^aux moyens d'augmenter le profit des entrepreneurs, 
moyens que nous avons ^um^r^ No. 1 et 4, est attach^ nn d^vantage pour 
les acheteurs et les ouvriers ; mais les autres moyens sont d^une utility g^i^ale, 
et ce sont aussi les plus sCkrs.** 

It may be added that, on the assumption of perfect competition, the 
entrepreneur would not be able to wrest any undue advantage from either the 
consumer or the workman by the means numbered 1 and 4. 



THE 80UBCE OF BUSINESS PB0FIT8 211 

siderable portion of the supply which is produced at the 
greatest disadvantage. Wheat is raised on some fiarms at 
a cost of two shillings a bushel ; but this wheat is not, 
therefore, sold at two shillings, nor does it even tend to 
be sold at that price. If the demand for wheat is so great 
as to require a portion of the supply to be raised and 
brought to market from soils so poor or from regions so 
distant as to involve a cost of six shillings, all the wheat 
in the market will be sold at that price ; and those who 
produce it at a relative advantage will derive a profit 
which, as in this case, issuing from land, we call rent. 

Likewise the cost of maintaining the employers of the 
lowest industrial grade necessarily enters into the normal 
price of produce. But we have already noted that the 
remuneration or means of subsistence of this class of em- 
ployers would, under full competition, not exceed the 
remuneration of the same persons if themselves employed . 
by others; and profits not in excess of wages we have/ 
agreed to consider no profits at alL The cost of that por-*' 
tion of the necessary supply which is produced under the 
direction of employers of this class fixes the price of the 
whole supply ; and those who produce at a relative advan- 
tage have left in their hands a surplus, after paying 
wages, interest, and rent, at rates equal, aU things taken 
into account, to those which are paid by employers who 
realize no gain for themselves. 

That profits are not obtained by deduction from wages 
is equally clear, when we consider that the most successful 
employers pay as high wages as the employers who realize 
no profit. Indeed, as we saw, a preference, not always a" 
slight preference, exists on the side of the more successful 
men of business, since the greater continuity of employ- 
ment and the greater security of payment constitilte a 
virtual addition to wages. 

It will be seen that, in the view here presented of the 
origin and the measure of profits, this form of industrial 



278 QUABTEBLT JOURNAL OF ECONOMICS 

remuneration is closely assimilated to rent.* This I be- 
lieve to be the true explanation of business profits. 
Under free and full competition, the successful employers 
of labor would earn a remuneration which would be ex- 
actly measured, in the case of each man, by the amount of 
wealth which he could produce, with a given application 
of labor and capital, over and above what would be pro- 
duced by employers of the lowest industrial, or no-profits, 
grade, making use of the same amounts of labor and cap- 
ital, just as rent measures the surplus of the produce of 
the better lands over and above what would be produced 
by the same application of labor and capital to the least 
productive lands which contribute to the supply of the 
market, lands which themselves bear no rent. 

If the view here presented be a correct one, it will ap- 
pear that it is for the interest of the community, particu- 
larly of the wages class, that the conduct of industrial 
enterprises should be restricted to men of distinct, decided 
business ability. As, in rent, any lowering of the margin 
of cultivation, bringing into use lands of a smaller net 
productiveness, increases the cost of production of that 
last necessary portion of the supply which fixes the price 
of the whole crop, and does thereby enhance the propor- 
tion of the produce which goes to the land-holding class 
as rent, so, in profits, we see that to commit the conduct 
of business to an inferior order of men, having, so to 
speak, smaller net productiveness in the use of labor and 
capital, is to enhance the cost of that last necessary por- 
tion of the supply which determines the price of the 
whole stock, and is thus to increase the share of the 
product of industry going to the employers of higher 
grades, as profits. 

*Iii an obscure note to one of the appendices to Archbishop Whately^s 

treatise on Logic, I find the remark that the rent of land is only a species of 

An extensive genus, although, as he complains, the English economists have 

"«atod it as constituting a genus by itself, and have either omitted its cognate 

^ociee or have included them with genera to which they do not properly 

ongp, rpj^ remark contains the germ of the theory of profits which I have 

^e»e advanced. 



THE SOURCE OF BUSINESS PROFITS 279 

If this be correct, we see how mistaken is that opinion 
too often entertained by the wages class, which regards 
the successful employers of labor — men who realize large 
fortunes in manufactures or trade — as having in some 
way injured or robbed them, while extending to the less 
successful or altogether unsuccessful employers of labor a 
considerable degree of sympathy. So far as such sympa- 
thy springs from a natural kindness of feeling and a dis- 
position to take the part of the unfortunate, it is right 
and commendable. So far, however, as it is of an eco- 
nomic origin, growing out of the belief that the employers 
of the higher class have made their large profits at the 
expense of their laborers, it is both mistaken and mis- 
chievous. The men who do business at the cost of the 
working classes are the men who do business poorly: 
first, for the reason that we have stated, — namely, that 
it is the lowest grade of business ability that determines 
the price of the produce ; and, secondly, because incompe- 
tence in the conduct of business enterprises has much to 
do with bringing about those shocks to credit, disturb- 
ances of production, and fluctuations of prices from which 
the community as a whole, but particularly the working 
classes, suffer so greatly. The first interest of the com- 
munity is that business shall be well done, — done with 
energy, eflSciency, and economy, done with prudence, judg- 
ment, and foresight. Anything which lowers the charac- 
ter of the business class in these respects works serious 
injury to all classes of producers, and especially to that 
class which is, in the nature of the case, under the greatest 
economic disadvantage at the start.* 

Many things tend to allow incompetent persons to 
force themselves into the control of business, and to main- 

* ** C'est faute de bien se rendre oompte de toutes ces ciroonstanoee et 
d'ayoir one id^ bien arrets sur les lois des variatioiis des profits et dee 
salaires, et box Fimportaiice et les droits r^iproqnes du capital, da trarail, et 
dn talent dans la r^artition que les classes ouvri^res ont sonvent et^ condnites 
k voir de manvais ceil le succ^ des entreprenenn et It consider les profits et 
les b^^fices conime acquis k lenr d^ens.'* Joseph Gamier, 



280 QUABTEBLY JOUBNAL OF ECONOMICS 

tain themselves there at the expense of the general com- 
munity. "Protection," in my opinion, does this. The 
practice of "Truck," or the pajrment of wages in kind, 
unquestionably has this effect, enabling men who could 
never earn a legitimate profit to extort a fraudulent profit 
from their hands. Slavery, of course, allowed and en- 
couraged incompetence, shiftlessness, and wastefulness in 
the conduct of business; and it was quite as much the 
character of the employing class as the inferior quality of 
chattel labor which brought about the wretched industrial 
results obtained under that system. Bad money is a fruit- 
ful cause of the downward extension of the employing 
class,* lowering the margin of production in this respect, 
thereby enhancing the cost of that last necessary portion 
of the supply which determines the price of the whole, 
and thus increasing, uselessly and to the loss of the com- 
munity, the profits of the employing class. Another im- 
portant class of causes which produce, in greater or less 
degree, the same mischievous result, relate to the collec- 
tion of debts and the penalties for commercial delinquency 
or insolvency. Whether it be shilly-shally laws respect- 
ing bankruptcy, or bad judicial machinery for the deter- 
mination and enforcement of commercial obligations, or 
a dishonest or maudlin public sentiment regarding the 
unfortunate debtor, the effect is the same. Men who for 
the general good should be relentlessly thrown out of the 
conduct of business and remitted to subordinate positions 
in the industrial organization, are allowed to hang miser^ 
ably on to their mistaken career. Finally, ignorance, 
inertness, and improvidence on the part of the working 
classes greatly increase the opportunities for incompetent 
men to crowd themselves into the control of labor and 
capital, and to conduct industrial enterprises at the cost 
of the general community. 

* '* Between 1860 and 1870, the number of persons engaged in trade and 
transportation in the United States had increased by 44 per cent., while the 
population had increased bnt about 22 per cent/* Walker, Some BestdU qf 
the Census qf 1S70. 



THE SOURCE OF BUSINESS PROFITS 281 

Here, again, we see an occasion for labor to win a larger 
share of the produce without any injury to industry, and, 
indeed, directly through an improvement in the average 
quality of the industrial enterprises of the community. 
Here, again, we find an illustration of the principle that 
the economic condition of the laboring class is very largely 
put into their own hands, to deal with as they shall please, 
or rather as they shall wu, o do. 

Such, in rude outline, is my view of business profits. 
We have here a theoretical determination and delimita- 
tion of the remuneration of the employing class, which is 
perfectly self-consistent and rational, and which, if ap- 
proved by economic opinion as properly and fully account- 
ing for the industrial facts with reference to which our 
hypothesis was constructed, gives us all that was lacking 
towards the theoretical determination of wages. 

First. Rent is to be deducted from the produce of 
industry, its amount to be determined by the Ricardian 
formula, with more or less of remission, in fact, from land- 
lord to tenant, under the influence of custom or kindly 
feeling, as these causes may be found to operate. 

Secondly. Interest is to be deducted as the remunera- 
tion for the use of capital, its amount being determined 
by the relation of supply and demand, but always tend- 
ing, through the operation of a natural law on which all 
economists, from Adam Smith down, have delighted to 
dwell, towards a minimum, — the minimum, in the case of 
interest, being that rate which will induce the possessors 
of wealth to refrain from consuming it for the immediate 
gratification of their tastes and appetites, and to save and 
store it up to the extent of making good the waste and 
wear of the existing stock of capital and of answering 
the demands for the enlargement of that stock to meet 
new occasions for productive expenditure. This condi- 
tion may imply, in one state of society, an interest rate 



282 QUABTERLT JOURNAL OF ECONOMICS 

of eight per cent. ; in another, of five ; in another, of 
three. But, whenever the rate is eight per cent., it con- 
tinually tends to become five ; and, whenever it is five, it 
continually tends to become three, inasmuch as the occa- 
sions for an increased expenditure of wealth for produc- 
tive uses are certain to be soon transcended, at any given 
rate of interest, by the rapid accumulations of capital, 
which go forward by geometrical progression. 

Thirdly. There is to be deducted profits, the remu- 
neration of the employing class, determined, as we have 
seen, by principles closely analogous to those which deter- 
mine rent. In this view, profits constitute no part of 
the price of goods, and are obtained through no deduc- 
tion from the wages of labor. On the contrary, they are 
the creation of those who receive them, each employer's 
profits representing that which he has produced over and 
above what the employers of the lowest industrial grade 
have been able to produce with equal amounts of labor 
and capital. 

After these three successive deductions, there remains 
wages. This is the residual share of the product of indus- 
try, — residual in this sense, that it is enhanced by every 
cause which increases the product of industry without giv- 
ing to any one of the other three parties to production a 
claim to an increased remuneration, under the operation of 
the principles already stated ; residual in the sense that, 
even if any one or all of the other parties to production be- 
come so engaged in any given increase of the product as 
to become entitled to an enhanced share in its distribution, 
their shares still remain subject to determination by posi- 
tive reasons, while wages receive the benefit of all that is 
left over after the other claimants are satisfied. 

Now, granting the correctness of the analysis here 
offered, it is demonstrable that the product of industry 
may be increased without enhancing the share of all or of 
any of the other parties to distribution ; and, even when 



THE 80UBCE OF BUSINESS PBOFTTS 283 

the other shares are enhanced, it is possible and even 
probable that, on the assumption of perfect competition, 
the increase of product resulting from the introduction 
of any new force into industry will be greater than the 
sum of the increments by which rent, interest, and profits 
shall have been enhanced. If this be so, then the wages 
class receive a benefit from any increase of the product of 
industry corresponding to that derived by the residuary 
legatee whenever the total value of the estate concerned 
is ascertained to have been, or by some unanticipated 
cause becomes, larger than was in contemplation of the 
testator when the amounts of several specific bequests 
were determined upon. 

Thus, to take the simplest possible case, let us say that 
the line ax 



-y 



represents the amount of the production of a given com- 
munity. Of this total, ox, let ab represent the share going 
to the land-holding class as rent; ic, the remuneration of 
the capitalist class, under the name of interest; dx, the 
portion of the produce paid in wages; and, by conse- 
quence, edy the part retained by the employing class as 
profits. Let it now be supposed that an instantaneous 
improvement takes place in the industrial quality of the 
laboring class, by which they become so much more care- 
ful and painstaking, more adroit and alert, more observant 
and dexterous, as to effect a saving in the materials used 
in each and every stage of production, with a resulting 
increase of ten per cent, in the finished product over 
what had been accomplished by more wasteful, clumsy, 
heedless operatives. This assumption is certainly not an 
unreasonable one, as regards the extent of the possible 
saving to be effected through even a slight improvement 
in the industrial quality of a laboring population. The 
total product will then be represented by the line ay. 



284 QUARTEBLT JOURNAL OF ECONOMICS 

Our question is. To whom will go that portion of the 
produce which is represented by the dotted line ay, under 
the normal operation of economic forces ? 

I answer, If our analysis of the source of business profits 
is correct, this will go to the laboring class in enhanced 
wages. 

Let us see. To whom else should it go ? To the land- 
lord class, in higher rents? No, clearly not, since the ma- 
terials employed in production have not been increased, 
but the gain to production results from a better economy 
of materials, in kind and amount as before. Hence, no 
greater demand is made upon the productiveness of the 
soU; hence, cultivation is not driven down to inferior 
soils ; hence, rents cannot be enhanced, rent representing 
only and always the excess of produce on the better soils 
above that of the soils of the lowest net productiveness 
under cidtivation. The line a6, therefore, remains un- 
changed. 

Shall the line be show any change ? Shall all or any 
part of the gain ay go to the capitalist class as interest? 
Again, no. An improvement in the industrial quality of 
the laboring class does not necessarily increase the amount 
of tools and supplies required in production. On the con- 
trary, neat, intelligent, careful workmen require even 
fewer tools than ignorant, slovenly, heedless workmen, to 
perform the same kind and amount of work, since in the 
case of the former there will be a smaller proportion at 
any time broken or dulled or from any cause awaiting re- 
pair. Since, then, there is no greater demand for capi- 
tal in the case supposed, there can be no increase in the 
rate or amount of interest; and the line be will there- 
fore not be lengthened. 

Will the whole or any part of xt/ go to the employing 
class, as increased profits ? If we have correctly discov- 
ered the source of business profits, this will not be the 
case. An improvement in the industrial quality of a 



THE SOURCE OF BUSINESS PROFITS 285 

given body of workmen would not necessarily require any 
increase in the number of employers ; hence, would not, 
could not, enhance the aggregate amount of profits. On 
the contrary, an improvement in the industrial quality of 
the laboring class would tend, and would tend strongly, 
to raise the standard of business ability in the employing 
class ; to drive out the more incompetent, thereby raising 
the lower limit of production in this respect, and thereby 
reducing the aggregate amount realized as profits. 

We see, therefore, that the line ed will not be increased, 
in the case supposed ; and, as we have proved the same 
respecting ab and be successively, the whole of xy must 
go to lengthen the Hne dx^ representing the amount pre- 
viously received by the laboring class as wages. 

We have thus far, for convenience of reasoning and sim- 
plicity of illustration, assumed that the economic effects of 
the improvement in the industrial quality of the body of 
laborers in view are confined to an increase in the amount 
of the finished product through a diminution in that ele- 
ment of waste which enters into all production of wealth. 
The same argument would hold good of an improvement 
in the industrial quality of the laboring population which 
should result in the production of goods of equal bidk 
and weight, but of a greater value through a higher qual- 
ity, a more perfect finish, a nicer adaptation to the wants 
of the community. Not only is such an increase in the 
value of the product, which does not increase the amount of 
materials taken from the soil and hence has no tendency 
to enhance rents, possible, but instances of this charac- 
ter are, more than any other, representative of the modes 
of production in communities of a rapidly advancing civil- 
ization.* In all such cases, the increase of value due to 

* " Here is a ponnd of raw cotton, the production of which makes a certain 
demand, or drain, upon the Und. To that cotton maj be applied the labor 
of one operatiTe for half an hour, worth, saj, five cents. SaccessiTe demands 
for the prodaction of wealth may lead to the application of, first, a full honr*s 
labor, then of two hours*, then of three, fonr, or fire, finer and finer fabrics 



286 qUABTERLT JOURNAL OF ECONOMICS 

the improvement in the industrial quality of the laboring 
classes would, under the principles Isdd down in this 
paper, go, entire, to the laborers themselves, granted only 
perfect competition. 

But such an improvement in industrial quality would 
probably be followed, sooner or later, by an actual in- 
crease in the amount of material employed. In this case, 
what would be the distribution of the produce ? The in- 
crease would no longer go entire to re-enforce wages. A 
larger amount of materials being used, a greater demand 
would be made thereby upon the productive powers of 
the soil ; the lower limit of cidtivation would be pushed 
downwards, a longer or a shorter distance, to supply 
the increased demand; and rent would be enhanced, as 
in aU prosperous and progressive countries it certainly 
tends to be. But can any one believe* that all the in- 
crease in the total product worQd go to increase rent, or 
even that rent worQd be increased more than in the pro- 
portion of the increase in the total product? If not, 
then, the portions reserved as interest and profits remain- 

beins: suooeflsiYelj produced, until, at liwt, the pound of cotton has been 
-wrought into the most exquisite articles. . . . Here is the rude furniture of a 
laborer's cottage, worth, perhaps, $30. The same amount of wood maj be 
made into furniture worth $200 for the home of the clerk, or into furniture 
worth $2,000 for the home of the banker. The steel that would be needed to 
make a cheap scythe, worth eighty oents, may be rendered into watch springs 
or surgical and philosophical apparatus worth $100 or $200. ... A grentleman 
of means goes to Delmonico's, and pays $2, $3, or $5 for a dinner, which makes 
no heayier drain upon the productive essences of the soil than a dinner of 
corned beef and cabbage for which the laborer pajrs twenty-fire oents. . . . 
Our grentleman, before dining, had perhaps been measured for a pair of 
boots for which he was to pay $12 or $15, yet containing no more leather and 
so making no more draught upon the productive essences of the soil, in the 
way of nourishing the animal from which the leather was cut, than the la- 
borer's $3 pair of * stogies.' He had also ordered a suit of clothes for $60 or 
$75 at his tailor's, no thicker, no warmer, containing no more fibre, than the 
laborer's $15 tweeds." Walker, Land and its Rent. 

*I ask. Can any one believe this ? Mr. Henry Qeoige has oertainly shown 
the marveUous ci^acity, or the capacity for the marvellous, needed for such a 
belief. His fundamental economic preposition is that ** the ultimate effect of 
labor«aving machinery or improvements is to increase rent without increasing 



THE 80UBCE OF BUSINESS PROFITS 287 

ing unchanged, the share of the laboring class must be 
increased. 

But suppose, again, that the improvement in the indus- 
trial quality of the laboring class is carried to such a 
degree as to qualify them to use a higher order of tools, 
more complicated, more delicate, and hence more expen- 
sive, than before. Here we should have an increased 
demand for capital ; and, by consequence, supply remain- 
ing for the time the same, interest would be increased. 
But can any one believe that the capitalist class would 
receive all, or even for any long period the greater part, 
or, in permanency, even any considerable part, of the re- 
sulting gain to production ? On the contrary, it seems to 
me too clear to require formal argument, that the main 
advantage of such an improvement in the industrial qual- 
ity of the laboring class will be at once appropriated by 
that class in higher wages; and that, in the course of 
time, the whole of that advantage must be so appropri- 
ated, the rate of interest tending, as we know, strongly 
and swiftly to decline. 

In the foregoing illustration, we see the importance of 
the economic attitude which, if our analysis has been cor- 
rectly made, the laboring class occupy, as the residual 
claimants upon the product of industry. It is not for a 

wages or interest." In opposition to this, I have, I think, abundantly shown 
in my treatise. Land and iU Rent: — 

'* 1. That an increase of production map enhance the demand for labor 
eqnaUy with the demand for land ; 

** 2. That, in fact, in those forms of production which especially character- 
ize modem society, the rate of enhancement of the demand for labor tends to 
far exceed the rate of enhancement of the demand for land ; 

** 3. That an increased demand for the production of wealth may, and, in 
a vast body of instances, does, enhance the demand for labor without enhanc- 
ing the demand for land in any the slightest degree, the whole effort being 
expended in the elaboration of the same amount of material ; 

**4. That, instead of all improrements and inv e ntions increasing the 
demand for land, as Mr. Qeorge declares, some very extensiTe daiwes of 
improvements and inventions [notably, all those which relate to the arts of 
agriculture and transportation] actually operate powerfully, directly, and 
exclusively in reducing the demand for land.*' 



*288 QUABTERLT JOURNAL OF ECONOMICS 

moment to be supposed that the theory of business profits 
here presented accounts for all the facts of the case ; that 
the principles adduced govern the remuneration, of the 
employing class without extensive qualification. I only 
present this as affording a theoretical determination of 
this share of the product of industry, upon the assump- 
tion of perfect industrial competition. I have mentioned 
some of the causes which prevent profits from being kept 
down to the limits within which such competition would 
hold them. The discussion of these and other causes 
operating to the same end might profitably be extended. 

I believe that the theory here offered accounts for the 
actual facts of business profits about as nearly as the Ri- 
cardian doctrine accounts for the actual facts of rent. 
This is all that is claimed for it. If so much be con- 
ceded, it must, I think, be seen that we have, for the first 
time since the wage-fimd theory was exploded, a complete 
and consistent theoretical determination of the several 
principal shares into which the product of industry is 
divided. 

The bearing of this view of the source of business prof- 
its upon the socialist assumption that profits are but 
unpaid wages is too manifest to require exposition. That 
this view of business profits, if fully understood and ac- 
cepted by the wages class, would have a truly reconciling 
influence upon the always strained and often hostile rela- 
tions between employer and employed, cannot be doubted. 
This paper is submitted to the economists of the United 
States, in the hope that it will elicit criticism, — the more 
active and earnest, the better. If profits are not derived 
as herein stated, will not some one imdertake to show 
whence they do come and by what forces they a'* deter- 
mined and limited as to amount ? 

Feancis a. Walker. 



AN HISTORICAL STUDY OF LAW'S SYSTEM. 

I. 

At the death of Louis XIV., France was practically 
bankrupt. It is true, the floating debt and the capital 
represented by the rentes amounted to only about 3,000,- 
000,000 llvres; but, for the statesmen and financiers of 
that day, the resources of the kingdom were inadequate 
to meet the interest charges of this debt and at the same 
time pay the ordinary expenses of the government. The 
protracted wars during the reign of the late king had 
exhausted the vitality of the kingdom. Commerce was 
prostrate, manufactures were stagnant, agricidture had 
almost been abandoned. To escape service in the army 
or starvation at home, many laborers had fled to Italy. 
Deserted farms were frequently to be met with, and there 
were vast stretches of uncultivated land where the trav- 
eller encountered neither peasants nor domestic animals. 
The credit of the monarchy was almost entirely gone. 
In pursuance of a custom of many years' standing, the 
collection of a large part of the taxes had been farmed 
out for terms of years to individuals and to companies. 
To meet current expenses, the government had been 
obliged to negotiate with these farmers of the revenue 
for advances upon the taxes which they had the legal 
right to collect ; and thus many of the important sources 
of revenue had been anticipated for several years. 

Various forms of government notes and obligations 
were in circulation. Some of these had been issued in a 
regular manner, and some were practically certificates of 
indebtedness issued from the bankrupt oflBces of different 
branches of the revenue service. Double-entry book-keep- 
ing had not as yet been introduced by the government. 



290 QUARTEBLT JOURNAL OF ECONOMICS 

and no person knew the full extent of the goyemment 
debt or the form in which it stood. Such patent oppor- 
tunities for cheating had not been neglected; and the 
misery of the situation was aggravated by a large propor- 
tion of fraudulent paper, which circulated in the market 
among the various evidences of government indebtedness, 
and thus increased the government discredit. Notes is- 
sued by royal authority, which it was ordained by the 
Council of State should pass current between individuals, 
were, by the same authority, declared not to be available 
for payment of dues to the government. Little more 
confidence could be placed in the coin of the realm. The 
theory prevailed that the effigy of the reigning monarch 
and the denomination stamped upon the piece of metal 
which circulated as coin were what gave it value. The 
number of livres in the mare of gold or silver could be 
increased or diminished at the will of the ruling monarch. 
Theoretically, it was possible to call in all the coin of the 
State, and to reissue the same pieces of metal at a higher 
rate, the State thus receiving the benefit of the nominal 
increase in value.* No measure which their ingenuity 
could devise had been left untried by the financiers of 
Louis XIV. to raise money out of the people of France. 
As a result there had been established an ingenious sys- 
tem of direct taxes, which reached the most obscure 
branches of industry and trade, which hindered pros- 

* These increfises of denominational valae were termed ^^ augmentcUions^^ : 
the reyene prooesses were known as ** diminutiofu,*^ The manner in which 
they operated can be no better disclosed than by settinsr before the reader the 
argiunent used by the Parliament, in a remonstrance made to the regent, 
against a recoinage with augmentation. In this case, the citizen who bronght 
coin to the mint was permitted to add to his coin, for exchange into the new 
cmnage, billets d'iUxt to the extent of two-fifths of the amount of the omn. 
The result of this proceeding was stated to be substantially as foUows: An 
individual carries to the mint 125 marcs of silver, which, at the rate of 40 livres 
to the marc, make 5,000 livres. He also brings 2,000 livres in hUUts (T^tat. 
He receives in new coin 7,000 livres, which, at the rate of 60 livres to the marc, 
weigh only 116 2-3 marcs. He loses 8 1-3 marcs on the 125 marcs which he 
brought, and all his notes. 



AN HISTORICAL STUDY OF LAW'S SYSTEM 291 

parity, which even drove the laboring people over the 
border. 

It is not to be wondered at, that with such a legacy of 
misery, the regent was forced to discuss the propriety 
of repudiating the State debts. This step, however, he 
declined to take openly, although many of the operations 
to which he actually resorted were of the same nature. 
The outstanding obligations of the government which 
were of the character of demand debts were called in. 
Some of them were cancelled. Others were arbitrarily 
reduced in amount. In place of the old evidences of 
debt, new notes called billets cTStat for 250,000,000 livres, 
uniform in character and^ bearing four per cent, interest, 
were issued.* The process of inspection and cancellation 
was known as the ^' Ft«a," and was carried on under the 
management of the Paris Brothers, who were afterwards 
prominent in their opposition to Law. All those who had 
dealt with the government or who were suspected of 
usury were compelled to disclose their a&irs, and were 
subjected to arbitrary amercements of their property by 
the order of a " Chamber of Justice," composed of impor- 
tant government officials. Proceedings of this nature 
were not calculated to restore confidence on the part of 
capitalists. Yet the bare-faced corruption which had pre- 
vailed during the latter days of the preceding reign some- 
what mollified popular judgment ; and when the regent in 
various ways made feeble efforts to remove the trammels 
from trade, to encourage labor, to systematize taxation, 
and to relieve the State from the burden of payments 
largely absorbed in support of the privileged classes 
through pensions and offices, the fact that these steps 
were in the right direction was felt and appreciated. 

*Thero oan be no doubt that the title ''liUeUd'itat'' waa first specifically 
applied to this iisne of notes. Tet so competent an aathority as the Baron de 
Nerro speaks of the goTemment obli^tions called liUeU d'iUUy which were 
emitted under the preoedinflr reign. Les Finances Franqaius bous VAndenne 
Monarchies parM. le Baron de Nerro, t. ii., p. 9. 



292 QUARTERLY JOURNAL OF ECONOMICS 

While the authorities were thus groping in the dark, 
seeking for some ray of light which should reveal the 
pathway to prosperity, Law appeared upon the scene. 
He was bom in Edinburgh, in 1671. His father was 
a goldsmith, which in those days meant that he was also 
a banker. While Law was still a mere boy, his father 
died, leaving his family in comfortable circumstances. 
Under the guidance of his mother. Law received an 
education suitable to his station in life and to the ac- 
tivity of an intellect which even in childhood gave signs 
of its capacity. Arrived at early manhood, he drifted to 
London, where he led a career of dissipation, which cul- 
minated in 1694 in a duel, in which he killed his oppo- 
nent. He was thereupon tried for murder, convicted, and 
sentenced to death. Pending certain legal proceedings 
subsequent to the sentence, he escaped from prison, and 
fled to Amsterdam. While there, he is said to have de- 
voted himself to a study of the Bank of Amsterdam, 
which was then at the height of its prosperity, and it is 
supposed that he learned the secrets of its mysterious 
management. In 1705, he submitted to the Scotch Par- 
liament a plan for a land-bank. This scheme was pub- 
lished under the title " Money and Trade Considered." * 
The land-bank did not meet with favor at the hands of 
the Scotch Parliament ; and Law, shortly after submitting 
it, became a rover upon the continent of Europe. He is 
reported to have passed several years travelling from 
place to place, during which time he amassed a fortune 
by gambling and by fortunate speculations. His brain, 
meanwhile, was teeming with schemes of credit which 
should revolutionize trade and make the fortune of what- 

* John BriBooe, in 1696, unfolded a sobeine for a land-bank in a publication 
entitled A Ducowrse on the Late Fund qf the 3iiUion Act, etc,, together with 
Proposcds for supplying their Majesties with Money, etc,, by a National Land- 
bank, Law himself referred to a project submitted by " Doctor H. C." (Hugh 
GhamberUyne). Other schemes of a similar nature, suggested by men of spec- 
ulative temperaments, are referred to by students of the history of that time. 



AN HISTORICAL STUDY OF LAW'S SYSTEM 293 

ever State should adopt them. These plans he freely 
discussed with men of power and position who would 
listen to him, thus establishing for himself a continental 
reputation as a financier who had new ideas concerning 
banks, and who was thoroughly competent to elucidate 
and defend them. While searching for some sovexeign 
bold and needy enough to experiment with his theories, 
he proposed to Chamillart to establish a bank, and he 
forwarded to the Prince de Conti memorials, which, dur- 
ing the latter days of Louis XIV., were submitted to Des- 
marets.* The record of an attempt in another quarter is 
preserved through the epigrammatic answer attributed to 
Victor Amadeus of Savoy, who relieved himself from the 
perils of the experiment by saying, "I am not rich enough 
to ruin myself." It is probable that, when Law came to 
Paris and approached the regent with his schemes, he waa 
known in every capital in Europe as a brilliant financier, 
whose reasoning it was diflBcult to refute, but whose plans 
differed so materially from those then in vogue that he 
had not been able to find any ruler willing to adopt them. 
His success at the gaming-table and his career of dissipa- 
tion were no bar to his influence. 

Law submitted to the regent several memorials and 
letters in which he discussed the relations of money and 
credit to trade. In these papers, he referred to many of 
the banks then in existence ; but it is evident that the 
banks from which he deduced most of his theories, and 
upon the example of which he relied for his plans for re- 

* Law's works were collected and published in 1790. The name of the 
editor of this work is not given on the title-page, but M. de Senovert has gen- 
erally had the credit of it. Eugene Daire, in his ^conomistes ^Financiers du 
XVIUe Sihde^ republished this work, and also several fugitive pieces by 
Law, which were not included in Senovert's collection. Li Law's ** Second 
Memorial on Banks," p. 548 of Daire's collection. Law says, ** It wiU be easy 
to prove that, if the bank had been established by M. Chamillart, when I 
had the honor to propose it to this minister, this establishment would have 
sustained the Crown and the State." Page 563, he refers in a similar way to 
the papers which reached Desmarets. 



294 QUABTERLT JOURNAL OF ECONOMICS 

generating France, were the Bank of Amsterdam and the 
Bank of England. The former was a bank of deposit. 
The merchant deposited a sum of money, and in return 
therefor received on the books of the bank a credit. 
The money, once in the vaults of the bank, was supposed 
to remain there permanently. Its place in the currency 
of the world was supplied by the bank credit, which had 
a qtMsi circulation at Amsterdam. If the merchant wished 
to make use of his credit or of any portion of it, he gave 
an order to have a transfer made upon the books of the 
bank. Coins of all sorts and of every condition were 
received on deposit, but credits were adjusted in terms of 
a fixed standard adopted by the bank. Bills of exchange 
could thus be drawn in terms which avoided the embar- 
rassments arising from auffmentations and diminutions^ and 
from clipped and sweated coin. Confidence in the bank 
was complete, and bank credits were more available in 
Amsterdam than coin. Special deposits were permitted in 
cases where the merchant expected soon to require the 
specific use of coin ; but it is supposed that the general 
equilibrium between coin and bank credits was preserved 
through the medium of brokers, who daily dealt in bank 
credits on the Dam, and who, whenever there was a spe- 
cial demand for coin, always stood ready to purchase cred- 
its. Thus, a credit at the bank could always be converted 
into coin, and fluctuations were avoided. The Bank of 
England was based upon a different plan. Like that of 
the Bank of Venice, its foundation was government credit. 
It was organized for the purpose of lending its capital to 
the government, and thus it became a sort of fiscal agent. 
No power was given the corporation to issue bills, but it 
was assumed that it was conveyed in the general powers 
of the act under which the bank was organized. De- 
posits were received, accoimts with depositors were 
opened, and the bank very soon exercised the various 
powers and performed the several functions which it has 



AN HISTORICAL 8TUDT OF LAW* 8 8T8TEM 295 

continued to do to the present time. It became, in short, 
a bank of discount and circulation, which received de- 
posits from merchants and the capital of which was in 
the form of a government loan. 

The constitution and management of these and of other 
prominent European banks had convinced Law that, if 
confidence could be restored in France and the people 
could be induced to treat with a bank, as the merchants 
in Amsterdam did with their bank, the entire coin of the 
realm could be drawn into its vaults ; a large amoimt of 
paper currency could be floated, and woidd be preferred 
to coin as a circulating medium ; the bank, like the Bank 
of England, could act as agent of the government, and, 
if it should receive all the taxes, the credit thereby gained 
would enable it to float still more paper. The source of 
prosperity in any country he attributed to the abundance 
of money. Credit was the equivalent of money. By 
means of the increase of the circrQating medium, interest 
on the debt could be reduced, and perhaps the principal 
could be redeemed. Trade and manufactures would be 
stimulated, and from the more prosperous country a much 
larger revenue could be collected than could possibly be 
squeezed out of the unfortunate people as they were then 
situated. Such a bank would be more powerful than the 
Bank of Amsterdam, because it could make use of a por- 
tion of its deposits, reserving only a portion to redeem its 
bills. As the depository of all the coin in the realm and 
the receiver of all the taxes, it would also surpass the 
Bank of England in strength. 

The possibility of founding such a bank was based, 
first, upon the establishment of confidence ; and, second, 
upon a series of propositions which Law elaborated, and 
which have been epitomized by Forbonnais * substantially 
as foDows : — 

1. That all materials suitable for coinage may be con- 
verted into money. 

* Be(Aerches et Considiradom sw le» Finances de France. Baale, 1758. 



296 QUABTEBLT JOURNAL OF ECONOMICS 

2. That the abundance of money is the condition on 
which depend labor, husbandry, and population. 

3. That paper is more suitable than the metals for a 
circulating medium. 

In developing this last proposition, Law dwelt upon 
the fact that, by atigmentations and diminutions and by 
changes of standard of fineness, sovereigns had the power 
to make a metallic currency uncertain in value; and, 
further, that the value of gold and silver coin is affected 
by the market price of ingots. This price, he said, was 
governed by the quantity imported, and thus the value 
of the coin was in a measure dependent upon foreign 
powers. Paper having no intrinsic value was not af- 
fected by fluctuations of the market. The quantity could 
always be proportioned to the demand. Notes could be 
protected against fluctuations in value, arising from aug- 
mentations and diminutions^ by expressing their denomina- 
tions in coin of specified weight and standard. This would 
also act as a protection against nins upon the bank, as all 
temptation to convert the notes into coin in order to de- 
rive the benefit of an augmentation would thus be pro- 
vided against. Such notes would also be used like bills 
of exchange for remittances, saving the cost and trouble 
of transporting coin, besides saving time in counting. 

Law's first proposition for a bank was submitted at an 
extraordinary meeting of the council, held October 24, 
1715,* at which, in addition to the members of the coun- 
cil, several bankers, merchants, and representatives of 
cities in France were present.! The scheme then sub- 
mitted was thus described in the report of the meeting : — 

The idea of this bank is to cause aU the reyenues of the kiag to 
be brought to the bank ; to give to the reoeiyers and farmers of the 
taxes notes for ten crowns, one hundred crowns, and one thousand 

*Recherches Histcriques sur le Systkme de Law, par E. LeYHSsenr, Paris, 
1854, p. 39. 

t The matter had heen preTioualy diBonaaed at seTeral meetiiigs held at the 
remdenoee of those who were interested. '' 18th [Oct.]. Yesterday there was a 



AN HISTORICAL STUDY OF LAW*S SYSTEM 297 

crowns, weight and standard of this day, which will be called bank- 
notes. These notes will be thereupon carried by the said receivers 
and farmers to the royal treasury, which will furnish them with 
receipts on account AU those to whom payments are due from the 
king will receive at the royal treasury only bank-notes, with which 
they can go at once to the bank to receive their value, no person 
being obliged to keep them or to receive them in trade. But the 
Sieur Lass [Law] pretends that their utility will be such that every- 
body will be glad to have them in preference to silver, on account of 
the ease with which payments in paper can be made, and on account 
of the assurance of receiving payment for them whenever it is desired. 

The Duke of Noailles, who was then in charge of the 
finances of France, was opposed to the bank. He be- 
lieved that, before a credit sufficient to maintain a bank 
could be established, it was necessary to create a desire 
for such an institution. His opposition killed the scheme, 
as it was then presented. The regent announced that he 
had been of opinion that the bank ought to be estab- 
lished, but that he agreed with what the Duke of Noailles 
had said. The proposed bank, which should be founded 
on the royal funds, and which should be administered 
in the name and under the authority of the king, was 
abandoned. 

Law then submitted a plan for a bank which should be 
administered by himself, but which should be subject to 
the inspection of the government. The capital should be 
furnished by individuals, or, as he said, he himself would 
furnish it and would take all the risks. The proposition 
contemplated the use of deposits for the purpose of dis- 
counts, and objection was raised that the bank would not 
then be in condition to redeem its bills. He replied by 
pointing to the example of the Bank of Scotland, whose 
notes circulated freely after the bank demonstrated its solv- 

nmneTOiiB oonnoil held at M. Amelot's, to examine the project of the hank. It 
will meet again to-morrow at M. d'Argeneon's. Seveial hanken and principal 
merohantB of Paris will attend. M. Law has only leqnestod the Dnke of 
Orleans to exclude Bernard." Memoirs qf the Court qf France from the Year 
1684 to the Year 1720, now fizst translated from the Diary of the Marqnis de 
Dangean, ii., p. 370. 



298 QUABTEBLT JOURNAL OF ECONOMICS 

ency, even though it wan obliged to suspend specie pay- 
ments for lack of coin. He evidently hoped that the bills 
of his bank would be made a legal tender between the gov- 
ernment and individuals ; for, he said, ^' to make the bank- 
bills serve in payments between the king and subjects 
gives them a much greater extent of credit, and renders 
them much less subject to extraordinary demands, than 
if the receipt of the bills in payments were voluntary." 
He also clung to the idea of making the bank the cashier 
of the king, and argued that this act would remove dis- 
trust of the king's relations towards the bank, and would 
make it clearly to his advantage to sustain it. It would 
make the bank stronger, and less subject than other banks 
to events which might endanger its credit. Bank-notes 
would, in consequence, become like letters of exchange, 
payable at sight, in every city in the realm. To the objec- 
tion raised by the Duke of Noailles, that the confidence 
essential for the support of the bank could only be born 
of a desire for the bank, he answered that he could 
easily prove that the bank would restore confidence by 
causing money to circulate. In any event, it could not 
increase the present distrust, nor lock up coin closer than 
it was then held. All the edicts the king might issue 
would not restore confidence among foreigners. The bank 
alone could do it, by furnishing a means for drawing let- 
ters of exchange payable in Sens de banque^ which would 
not suffer any change, even if the denominational value 
of the coin in circulation should be altered. 

On the 2d of May, 1716, letters patent* were granted 
to Sieur Law and his company, to establish the Banque 
G^n^rale. The exclusive privilege of the bank was 
granted for the term of twenty years. Notes were to 
be stipulated payable in specie, under the term Scu9 de 
banque^ by which was to be understood coin of the weight 

*RecueU G^n&rcU des Anciennes Lois JVan^otses, Paris, 1890, t. nd., 
No. 57, p. 100 et seq, Dohantchamp, Hittotrt du Systhne des Finances sous 
la Minorite de Louis XF., ^ L* Haye, 1739, t. v., p. 74, No. 4. 



AN HISTORICAL STUDY OF LAW'S SYSTEM 299 

and standard of the date. The bank was exempt from 
taxation ; and shares and deposits belonging to foreigners 
were not subject to droits cTaubaifUy confiscation, nor let- 
ters of reprisal, in case of war. Depositors were to re- 
ceive notes payable at sight in return for their coin. The 
penalty for altering or counterfeiting these notes was 
death. The Duke of Orleans was named as the protector 
of the bank. 

On the 20th of May, an edict was promulgated, pre- 
scribing the details of the organization.* The capital was 
to consist of 6,000,000 livres, in twelve hundred shares of 
5,000 livres each. Open accounts could be kept in the 
bank, the cash balance being subject to withdrawal, or to 
viremefUs de parties^f — a method of adjusting balances 
between depositors by transfers of accounts, similar in 
effect to that which is to-day effected by checks. Bills or 
letters of exchange could be discounted; but the bank 
could not engage in trade by sea or land, nor in maritime 
insurance, nor in commission business. All bank-notes 
were to be made payable at sight, and the bank was for- 
bidden to borrow upon interest. The bank could issue 
notes, and the only limit prescribed was that there should 
be prepared at one time the amount which it was judged 
would be necessary. Forbonnais ^ asserts that the man- 
agers of the General Bank determined that the capital 
should be paid three-quarters in billets d^Stat and one- 
quarter in coin.§ Daire calls attention to the fact that 

^Reeueil Q4niral^ t. zxL, Ko. 61, p. 106 el seq, Duhaiitoluunp, t. y., 
p. 81, Letten Patent, cootaimiig RegolatioiiB, etc. 

t *' CompU en Banque is implied to a fond that merohantB, bankera, or other 
indiTidiuds deposit in the common treaenry of the bank." Under ** Banqne," 
the phrase " Ecrire une partie en banque is defined. To enregister in the books of 
the bank the mntoal transfer of sums, or portions of snms, in bank, which 
are made by oreditois to debtois. It is called * Virement dee Partiei,' " Le 
Grand Vocabvlaire FrawgaU^ Paris, 1767, and following yean. 

t Becherdies et Consid^rationa, t. U., p. 427. 

§ Laoretelle erroneonsly says that the funds of the GJeneral Bank were com- 
posed one-half of bSUts d'iUU, Histoire de France pendant le Dix-hmtihnt 
SOcle, Paris, 1830, t. i., p. 267. 



800 QUABTXRLT JOUBNAL OF ECONOMICS 

Thiers omits all notice of this fact.* Notwithstanding 
the redaction of the amount of the government debts 
effected by the VUa and the Chamber of Justice, the 
billetM cTitat were still at a heavy discount on the market. 
There were no definite quotations, for traffic in govern- 
ment securities was attended with danger from arbitrary 
proceedings like the Vi$a. Sales were effected, however, 
in an underhand way by agents whose bead-quarters were 
in the Rue Quincampoix, and the rates obtainable were 
governed somewhat by the necessities of the seller. At 
that time, such securities are said to have been at a dis- 
count of from sixty to seventy per cent. If one-quarter 
of the capital was paid in cash and three-quarters in billeti 
cTStat at the lowest market rate, the effective capital of 
the bank would have been 2,860,000 livres. 6anilh,t 
taking billets cTStat at forty, figures the effective capital 
at 8,800,000 livres.J 

The bank was authorized to exercise its functions as 
soon as the twelve hundred shares were subscribed. A 
meeting of the subscribers was then to be called, at which 
regulations were to be fixed for payment for the shares. 
The place designated in the royal declaration for the 
office of the bank, until a more suitable place could be 

• Axmomistes Finemders du XVUIe Sikde, par Engine Daire, Fkrit, 1851, 
p. 426, note 1. **The power to pay the price of the share, one-quarter in 
■ilTer and three-qnarten in billets iP^UU, m an important oironmstanoe, oi 
which M. Thiers does not speak. It proves that the interests of the bank from 
its ori^ were connected with those of the goyemment.** Page 428, note 1, 
Daire shows that Thiers confused the General Bank with the Coippany of the 
West, so tax as paying for shares in this manner was concerned. 

t B$9ai Politique iwr le Revenu Public, par M. Ch. Ganilh, Fkris, 1806, 
t. ii., p. 4. 

t llie s t ate m ent that one-quarter was paid in cash has been taken by some 
writers to mean that one-quarter of the cash was paid in. L^montey quotes, 
from a manuscript on John Law by Ledran, the statement that 375,000 HTres 
were paid in c<nn and 1,125,000 liyies were paid in billels d'itcA, which were at 
a discount of seyenty per cent. Hittoire de la B^gence, par P.-E. L^nootey, 
Pltfis, 1832, p. 71, note. CouroeUe-Seneuil, in Lal<»*s CifdopcedicL, says that, oi 



AN HISTOBICAL STUDY OF LAW* 8 SYSTEM 801 

found, was Law's house, Place Louis-le-Grand (Ven- 
ddme),* then a new quarter of Paris. 

Nothing in the letters patent of the bank indicated its 
close connection with the government, unless the fstct 
that the Duke of Orleans was styled its protector be so 
regarded. On the surface, the policy of the Duke of 
Noailles prevailed; and Law was left to establish confi- 
dence in his bank-bills without the direct aid of the gov- 
ernment. The bank was not at that date declared to be 
the royal cashier, nor were the bills ordered to be received 
between the government and the people. But, from the 
statement that the regent presided at a meeting of the 
shareholders, December 20, 1717, f at which a semi-annual 
dividend of seven and one-half per cent, was declared, 
we learn that the protectorate of the regent was more 
than a name. The mention, also, of the presence at this 
meeting of a majority of the great lords of France shows 

the 1,500,000 payable in specie, leas than 400,000 liTres had been paid np. 
Jobex says, ** The bank was opened with the snm of 375,000 liTies ; for on 1,200 
shares of 5,000 lirres, divided among the shareholden, and payable one-qnaiter 
in coin and three-qnaiters in billeU d'itat^ the payment of only ooe-qnarter of 
what was doe had been exacted.'* La France tout Louis XF., par Alphonse 
Jobez, Paris, 1864, t. L, p. 465. There is, however, nothing in the edicts issued 
at the time of the organisation of the General Bank which relates to the man- 
ner in which the capital stock should be paid in. Reeueil O^n^rai^ t, zxL, pp. 
100, 106, Kos. 57, 61. And see Dnhantchamp, t. y., pp. 74, 81. In the decla- 
ration of the king, converting the GJeneral Bank into the Royal Bank, it is 
stated that the capital of the General Bank was originally paid in bilUts (T^tai, 
which were afterwards converted into shares in the Company of the West. 
Becueil Giniral^ t. zxL, p. 167, No. 173. Dnhantchamp, t. v., Ko. 14, p. 
157. Forbonnais's statement conceniing the method in which the capital 
should be paid in was apparently taken from the records of the bank, and 
Ganilh's statement of the effective capital of the bank was therefore M>prozi- 
mately eonect. 

* As a matter of fact, it is stated by Piganiol de la Force that *' Law first 
established the offices of the Bawqvte G^nhaU^ which mined so many families," 
in the Hdtel de Mesmes, which is in the Rue Sainte-Avoye. Detcription de 
Paris, etc., par M. Piganiol de la Force, Paris, 1742, t. iv., p. 204. Levas- 
seur, p. 129, note 2, says it was determined, in April, 1719, to remove the 
offices of the bank from the Hdtel de Mesmes, Rue Sainte-Avoye, to the H6tel 
de Nevers, Rue de Richelieu, the building which is now occupied by the 
Biblioth^ue Nationale. 

tL^montey, t. i., p. 72. 



302 QUABTEBLY JOURNAL OF ECONOMICS 

that Law had scattered his stock where it would do him 
good.* It is evident that the Court was, from the first, 
directly interested in the success of the bank. Accord- 
ing to Forbonnais, the success was a pronounced fEict 
from the very beginning ; and the beneficial influence of 
the bank upon trade and manufactures was inmiediately 
felt. 

It is clear, however, that the General Bank, even after 
it had demonstrated its value, was far from satisfactory 
to Law. Although he had alleged that credits or notes, 
being more suitable than coin, would always be preferred, 
if the establishment and the management were well regu- 
lated, and although he had proved that the French would 
avail themselves of such credits, still he longed for the 
more extended area for operations and the greater protec- 
tion against extraordinary demands, which, he said, would 
result from making use of the bills in payments between 
king and subject. He had argued that the power on the 
part of individuals to refuse the bills of the Bank of Scot- 
land had made the circulation of the bills of that bank 
more uncertain than if they had been, as he termed it, 
legal. In the same memorial in which he offered to as- 
sume the risk of the experiment himself, he had insisted 

* If proof be needed upon thk point, it is farmshed by the infamous Abb^ 
Dubois, who records the fact that he was bribed, and also indicates that Stair, 
the TCw gliah ambasMdor, was working in Law's interest. **Law wished for 
only one foot in the stirrup ; and, in fact, his beginning were so reasonable 
that I was seduced at the yery first. Stair, who was always at the Palais 
Royal, raised by degrees the enthusiasm of the regrent for the formation of a^ 
bank, to be treasurer of the State, with Law as director. NeTertheless, the 
Duke of Orleans, all on fire at first, cooled off considerably, when it came to 
the question of issuing an edict. Then Law played adroit mancBUTres, spend- 
ing money and promises. My own credit with the prince was too weU known 
for him not to engage it at any price. Stair sent for me particularly ; and 
Law, whom he presented to me as a genius, fought me on his own ground^ 
proving to me the advantages of the bank,— adyantages which were very clear 
to me, since, in addition to a sum payable after the establishment of the system, 
they gare me thirty of the first 12,000 shares. I entered warmly into their 
plans, and did not leave the regent at rest until he had consented to CTeiy- 
thing.'* M4moirts du Cardinal Dubois, Paris, 1829, t. iii., p. 238. 



AN HI8T0BICAL STUDY OF LAW'S SYSTEM 303 

that the idea of making the bank the cashier of the king 
would make it stronger, would extend its credit, and 
would make its bills, like letters of exchange, payable at 
sight in each city in the kingdom. He maintained that 
an absolute monarch could extend his credit more advan- 
tageously, and could obtain money at lower rates of inter- 
est, than a prince with limited authority. The error 
committed by France which had produced distrust had 
been, according to him, in making the notes which the 
State issued interest-bearing. They should have been 
payable at sight, without interest. They were invest- 
ments, and not credits. His belief in the power of an 
absolute monarch to force the circulation of State notes 
is shown in one of his letters to the regent. He there 
states that force is contrary to the principles on which 
credit ought to be founded, and that all that was neces- 
sary to introduce his project into commerce was that his 
notes should be used in place of specie in dealings be- 
tween the king and his subjects; but he prefaced these 
assertions with the remark that his Majesty ought not to 
hesitate in compelling people to use these notes, if it 
became necessary to do so.* He was willing to use force 
in an emergency, notwithstanding the fact that it was 
opposed to the principles of credit. 

In May, 1716, an edict was issued,! which recited that 
various orders had been made against the circulation 

* The opinions attribnted to Law in the text are taken from the compila- 
tion of his workSf published in Daire^s jSconomistes Financiers, It would be 
impossible, in the limited space afforded me, to furnish references to aU cita- 
tions. To aid the student who may wish to follow the subject further, I point 
out a few of the references in this paragraph. That the credit of the bank 
would be extended by making it the royal treasurer, see page 550; that an 
absolute monarch has an advantage oyer one with limited anUiority, see p. 546 ; 
that credit, to be like money, ought not to bear interest, see p. 547 ; that force 
is contrary to the principles on which credit ought to be founded, and for the 
contradictory remark which prefaces it, see Letter VIII., p. 590. See also 
Daire^s note to the same : ** On n^avait jamais vu se contredire a deux lignes de 
distance,''^ 

t RecueU Gin^ral, t. xxi., p. 114, No. 09. 



i 



304 QUABTERLT JOURNAL OF ECONOMICS 

of notes with the name of the payee left blank, that a 
custom prevailed of avoiding these laws by making such 
notes payable to bearer, and that blank indorsements 
worked the same eflfect. All these methods were forbid- 
den to individuals, but State notes and notes of the bank 
might circulate in any of these forms. On the 25th of 
July, 1716,* a declaration of the king was issued, the 
object of which was to facilitate the transmission of notes 
to the provinces, by removing all risk of loss during trans- 
portation. Indorsements of bank-notes were permitted to 
be made, the only effect of which would be to indicate 
the ownership of the notes, unless there was an express 
guarantee given by the indorser. 

The decree of council, April 10, 1717, in which it was 
ordered that notes of the General Bank should be re- 
ceived for all taxes and revenues of his Majesty, and that 
officials having charge of the royal treasure should re- 
deem at par bank-notes which should be presented to 
them for that purpose, has generally been considered as 
fixing the date of the intervention of government in be- 
half of the bank.f In the preamble of this decree, it is 
stated that the notes of the bank had already established 
their credit throughout the kingdom and in foreign lands ; 
that remittances had consequently become much more 
easy ; that discounts had been reduced and usury dimin- 
ished ; and that it was important that these notes should 
be received for value throughout the kingdom, so that re- 

^'Rectml G^nircd, t. xxi., p. 120, No. 86. 

t In October, 1716, the Duke of Noaalles apparently yielded to the pressure 
of Law, and on the 7th of that month addressed a letter to the intendants of 
the proyinoee, which is quoted by Levasseur, p. 49, in which receivers of taxes 
were ordered to make their remittances to Paris in bank-notes, and to redeem 
the notes wheneyer tihey had specie in their treasuries. This order proved to 
have been issued too soon. The bank was not prepared to furnish notes fast 
enough for so extended a use. Receivers took advantage of the order to with- 
hold their remittances. It was therefore modified by a letter of the 26th of 
December, in which these officials were instructed to redeem bank-notes, when 
presented, but not to hold back their funds. The order of October anticipated 
by six montlis the date usually assigned for the intervention of the government. 




AN HISTORICAL STUDY OF LAW'S SYSTEM 305 

mittances could be promptly made, thus avoiding loss of 
use of money through lying idle in the treasuries, and 
also avoiding as far as possible the transportation of coin 
from the provinces to Paris, which was always a disad- 
vantage to trade. 

Notwithstanding the evident advantage to the provinces 
of being furnished with a means of remittance to Paris 
which gdiould avoid the expense and risk of transportation 
of coin, the bankers and officials who were interested in 
maintaining the old system were powerful enough to raise 
serious opposition to this order in the greater part of the 
provinces. The Duke of Noailles was obliged to exert 
his authority to the utmost, and even in some instances 
to punish recalcitrant receivers of taxes, before the order 
could be enforced in its full spirit ; and the council was 
obliged to follow up this decree with supplementary de- 
crees,* issued September 12, 1717, February 26, 1718, and 
June 1, 1718, before the opposition was overcome. 

In a letter to the regent. Law had said : " The bank is 
not the only nor the grandest of my ideas. I will produce 
a work which will surprise Europe by the changes which 
it will effect in favor of France, — changes more powerful 
than were produced by the discovery of the Indies or by 
the introduction of credit." In a note, Senovert f queries 
whether Law alluded in this to the Company of the 
Indies. Unless this be accepted as an allusion to that 
company, I find no hint in Law's preliminary arguments 

* Recueil G^n^rai, t. zxi., p. 106, note. Duhantohan^), t. ▼., pp. 117, 120. 

t Quoted io Daiie's £amomisU8 Financiers^ p. 581. On the same page, a 
few linee above. Law says : *^ Tonr royal highness will remember that, one day 
at Mariy, yon did me the honor to say that through the openings which I have 
made yon began to see beyond the difficulties of the conntzy. I then had the 
honor to say that the bank was not the most important of my ideas, but that 
I had a plan by which I wonld fnmish fire hundred millions which should cost 
the pec^le nothing." It is to this clause the note in question is attached. In 
the edition of (Euvres de J. Lawy Paris, 1790, generally attributed to Senorert, 
the note occurs <m page 335, while the expression quoted in the text is <m page 
837. "Hie force of the reiteration is much empha^xed when thus encountered 
on separate pages. 



306 QUARTERLY JOURNAL OF ECONOMICS 

that his original scheme contemplated the absorption of 
the great commercial monopolies of France. The time 
had come, however, for the development of his system. 
Crozatj to whom Louis XIV, had in 1712 granted the 
monopol}^ of the commerce of LouiBiana, had petitioned 
the regent for the pri\dlege of surrendering the conces- 
sion j and this privilege was granted him by decree of 
council dated August 23» 1717,* The statement has been 
made, but not generally accepted, that this act of Crozat 
was for the purpose of disarming the Chamber of Justice, 
and that the suggestion that the grant be put in the hands 
of Law was not dictated in a spirit of friendship, but in 
the hopes that it would lead to his destruction *t The 
grant surrendered by Crozat was promptly conferred 
upon the Company of the West for a period of twenty- 
five years, by an edict registered on the 6th of Septem- 
ber f of the same year. The company was given the 
monopoly of the commerce of the colony and the abso- 
lute control of colonial affairs, as well as the monopoly of 
the trade in beaver skins in Canada* AU mines opened in 
Louisiana during the term of the concession were granted 
to the company. It had the power to sell and convey 
lands free from the rights of seigniorage. It could arm 
and equip vessels of war, and the property of colonists 
in Louisiana was exempt from taxation during the period 
of the grant. The territory over which the company ex- 
ercised these sovereign powers comprehended the region 
from which the Mississippi, the Ohio, and the Missouri 

*Thl9 date Eh give^n m a preamble. DiihiiiitcliaTD[), t. v.^ p, 92. Se« ulaa 
Recueil d\irrestK ft Autre^ Pieces p&ar P^tabiUsetnent de ia Cdjnpagnie d'Ood* 
dent^ AmBterdajD, ITISO, p. 112, 

tL^motiteyi HigloirE de la R^gence^ t. L, p. 73, Martmi on thi^ aa od 
many cither pointiji foUowd Lfhnont^y : ** Noailles^ whom the inflnence* of Law 
began to di^uiet, hoped to dntw him into a, niinoos affairt and little Bospect^ 
that he was oS^ting him th« ardetitlj deidred lever of hia aystem/* Histitrp q/ 
France^ by^ Henri Martiiif tEan»lated by Mary L, Booth « vol, xv,, p. 3ti^ 

t Duhautcbampi L t*, p. 91. Rttueil iPArr^stA^ p.llet s^. 




AN HISTORICAL STUDY OF LAW'S SYSTEM 307 

draw their waters. The only condition attached to the 
grant was that the company should import, during the 
period of the concession, six thousand whites and at least 
three thousand blacks into Louisiana. 

No limit was fixed for the capital stock in the original 
grant, except that his Majesty was to close the books 
when the Directors said enough had been subscribed. 
Shares were fixed at five hundred livres each, and were 
to be paid for in billets cTStat. It was declared that the 
shares should \)e made payable to bearer, and that they 
could be acquired by all persons without regard to their 
rank. The same inducements were offered to foreigners 
to invest in them as in the case of the General Bank. 
His Majesty declared that he wished non-resident for- 
eigners to enjoy the same privileges in this respect as 
subjects of France. The billets cTStat which should be 
paid for the shares were to be converted into four per 
cent, rentesj and the billets themselves burned.* Thus, 
the market would be relieved from nearly one-half the 
floating debt of the State ; and shareholders would be 
entitled to the same income as if they had held the notes, 
while they could hope for possible profits from the de- 
velopment of the colony.f 

*Bailly says that Law undertook to pay at par in nlyer the shares oi the 
Company of the West, created but a short time before, in bilUts d'itaX^ adding: 
thereto a diTidend mnch gr e at e r than the profits warranted. Before the time 
fixed for the redemption, the Company of the Indies was founded. No one 
demanded the redemption of his shares of the West. On the contrary, in one 
month, they were carried from par to 190 per cent. HUtoire Finandkre de la 
France, par M. A. Bailly, Paris, ISaO, t. ii., p. 80. I do not know on what 
anthority this statement can be based. Perhaps it refers to the redempti<m of 
the General Bank shares. 

t Thiers erroneously states that shares were to be paid for one-f oorth cash 
and three-foorths bilUts tT^tat, Memoin tff the Missisnppi BubUe, etc., by 
Adolphe Thie^^ translated by F. S. Fiske, p. 62. This statement is eri- 
dently a misiq>pIication of the terms on which subscriptions were paid for the 
Genial Bank, to the Company of the West. Mamumtel, whose account of 
the system contains several errors, and <m whom Thiers may perhj4Ni hare re- 
lied, makes the same mistake. (Euvres Pottkumes de MarmonUi^ Historiograpkt 
de France: Rigtnce du Due d'OrUans, Paris, 1805, t. i., p. 178. 



808 QUABTERLT JOURNAL OF ECONOMICS 

On the 12th of September, 1717,* seven directors were 
appointed by the regent, to whom power was given to 
regulate and administer the affairs of the company. Law's 
name led the list. In December, it was ordered by royal 
edict t that the capital stock of the Company of the 
West should be fixed at 100,000,000 Uvres. 4,000,000 
livres of rentes were created, which were to be issued 
to the company as fast as the corresponding amounts of 
biUete cTStcU were paid in. The four millions for the year 
1717 1 were to constitute the working capital of the com- 
pany ; but the rentes for the future were to be paid to the 
shareholders in semi-annual payments, beginning July 1, 
1718. The amount of the capital stock of the Company 
of the West was unprecedented in France. Yet, at the 
very beginning. Law made provision for a possible in- 
crease. It was decreed that shareholders who did not 
CQutribute to such increase should thereafter receive only 
the four per cent, arising from the rentes.^ 

* Beeueil d'ArrtsU, p. 21. 

t Beeueil (TArretts, p. 25. Sisraondi apparently oonfoimds the bank and 
the company, and, drawing no distinotion between this edict and the letters 
patent of Angnst, which were legristered September 6, says, ** The capital of 
the bank had been fixed at 100,000,000 by the edict of its creation.'' Hittoire 
des Francois, par J. C. L. Simonde de Sismondi, Paris, 1842, t. xzrii., p. 398. 

t Eight months of the year had elapsed ; and, at first sight, it wonld seem 
that, eren if the subscriptions were paid np promptly, there conld be bnt a 
fraction of the year's rentes for working capital. It must be borne in mind, 
however, that the biUeU efitaty with which the stock was to be purchased, also 
bore four per cent, interest. An attempt was made to oover this point in the 
third article of the December edict. Beeueil cTArresU^ p. 29. 

§ Apparently, the shares had coupons attached, representing this interest ; 
for it was provided that shareholders could dispose of the interest on their 
shares by separating from the note of the share the part in which mention was 
made of the interest, which would be paid by the cashier, when due. The 
interest notes, thus separated, became by this means notes payable to bearer, 
the same as shares. Beeueil cT Arrests^ § 14, pp. 34 and 35. The shares of the 
General Farms Company, which was organized Sept. 16, 1718, also had coupons 
attached. In the decree of Aug. 31, 1719, in which the method of reimbursing 
the shareholders of that company is prescribed, the ** coupons " of the shares 
are spoken of. Duhautchamp, t. t., p. 235. The dividends for the years 
1720, 1721, and 1722 were attached to the ''qualified " shares dated January 1, 
1720. Duhautchamp, t. vi., p. 66. 



AN HI8T0BICAL STUDY OF LAW'S SYSTEM 309 

The straggle between the regent and the Parliament 
of Paris began very shortly after the formation of this 
company. The story of this struggle is not without in- 
terest. But the power of the regent was now so firmly 
fixed that the contest with the Parliament did not seri- 
ously incommode the progress of the system; and the 
details of the contest are not, therefore, of importance in 
connection with the history of the bank and of the com- 
pany. The conservatism of the Duke of Noailles was not 
in harmony with the frame of mind of the regent; and, 
when D'Aguesseau was humiliated, Noailles retired from 
the council, and D'Argenson assumed control of the 
finances. The nomination of D'Argenson was especially 
obnoxious to the Parliament. He appears to have been 
an ambitious, energetic man, willing to aid in the execu- 
tion of projects, whether he believed in them or not ; and 
his readiness to adapt himself to circumstances has caused 
his position with regard to Law's schemes to be inter- 
preted in different ways by different writers.* The first 
act of importance affecting the finances which took place 
after D'Argenson assumed office was a recoinage with 
aufftnentatian. This was ordered in May, 1718, but was 
not even sent to the Parliament for registration. On the 
20th of June, that body by decree forbade the execution 
of the order, on the ground that it was prejudicial to the 
State, to commerce, and to the fortunes of individuals. 
On the same day,t a decree was issued by the Coimdl of 
State, breaking the decree of the Parliament and ordering 

*Loiii8 Blano says he was the leader of the malconteiiti who were jealous 
of Law. Histoire de la B^volutum jFVofi^aue, t. i., p. c. llie Duke of Riche- 
lien says: **Thii8, D^Ar^neon, Law, and Dnhols reeolYed not only to 
hnmiliate the Pailiament which hindered the lyBtem, bat they farther wished, 
by the same Bed of Jastioe, to destroy the Doke and Dnohess of Maine." 
Mimoirts du Mar€ckal Due de RuAdieu^ seooode ^tion, Paris, 1793, t. iii., 
p. 15. Clement, in his Portraits Hittoriquea, says he ** woold not sabmit to be 
bat a dammy for Law** (p. 252). 

t Extracts from the Registers of the Coanoil of State. Dahaatehamp, 
t. T., p. 123, No. 9. 



810 QUABTEBLT JOURNAL OF ECONOMICS 

anew the enforcement of the edict concerning the recoin- 
age. On the 12th of August,* the Parliament again 
showed its hand, this time directing its attack against the 
bank, which was ordered to keep within its charter. 
Royal treasurers were forbidden to deposit their balances 
in the bank ; and foreigners, whether naturalized or not, 
were directed not to meddle in its afiEEurs.f This was fol- 
lowed by a coup cTStat on the part of the regent. Troops 
were ordered out ; and the Parliament was summoned to 
a bed of justice, at which letters patent were issued | 
ordering it to keep within limits, and practically annul- 
ling its powers of remonstrance. From this time forward, 
during the development of the system, the Parliament 
was passive. 

While this contest was going on, shares in the company 
had not found favor with the public. The solicitude con- 
cerning subscriptions is shown by the various decrees on 
the subject issued from time to time during the summer. 
It was announced June 12, 1718,§ that a part only of the 
subscribers had paid up, and that the directors had, in 
May, stricken off the names of delinquents. It was de- 
creed that all who wished to subscribe might do so by pay- 
ing one-fifth in billets cTStat and the remaining four-fifths 
by the Ist of November. A failure to pay up in full by 
that time would forfeit the first payment. Courts and 
judges were deprived of the power of hearing disputes 
arising under this decree, such causes of action being 
referred to his Majesty's special consideration. This de- 
cree was followed by another, issued on the 28th || of the 
same month, authorizing the company to issue certificates 

^Dnhantohaiiip, t. t., p. 124, No. 10. 

t Law^s life was in danger doringr this struggle. It has even been said 
that the Parliament prepared to exeonte him. M4moires CompUU et ^ttt^^fi- 
tiqaea du Due de Saint-Simon, t, zri., Paris, 1829, p. 434. 

t Dnhantchamp, t. y., p. 127. 

iRecueil d'ArretU, p. 36. 

ii.Saciio7 0'6i^ra/,t.zzi., p. 106, note. Becueild'ArretU.p.dS. 



AN HISTORICAL STUDY OF LAW'S SYSTEM 811 

to bearer for such as had paid one-fifth, such certificates 
to contain a clause showing that they were forfeitable if 
the other four-fifths were not paid according to the terms 
of the previous decrees. 

On the 4th of December, 1718,* the Banque G^n^rale 
was, by a declaration of the king, converted into the 
Banque Royale,t to be administered after January 1, 1719, 
in the name and under authority of the king. In this 
declaration, the regent stated that the success of the Gen- 
eral Bank had caused him to examine anew Law's original 
project ; and, having been informed that it would be for 
the benefit of the great body of his subjects that the bank 
should be continued under the title of the Royal Bank, 
he had accomplished this by reimbursing the shareholders 
in coin for the billets dCitat they had paid in,t which lil- 
lets cTStat had subsequently been converted into shares 
in the Company of the West. He had, in consequence, 
become the sole proprietor of the bank. The shares in 
the Company of the West were to remain in the treasury 
as a fund for the bank, and to serve as a guarantee for the 
public. Notes of the bank were to be issued in future 
only by authority of decrees of the council, and were to 
be payable in Sous de banque or in livre% toumoiSy accord- 
ing to the instructions contained in the decrees. A 

• Becueil Q4n6ral, t. xad., p. 167, No. 173. 

t €kuii]fa callB attention to the onrions confusion as to what oonstitates a 
basis for credit, which was exhibited when the bank was thus converted into 
a grovemment institation : ** This metamorphoslB had no troublesome effects on 
the credit of the bank ; and what seemed tmly absord was that the iroyem- 
ment, which could not borrow a million on an edict enregistered in Parliament, 
borrowed fifty millions through the issue of bank-notes three months after it 
took possession of the bank. And these new notes, although without pledge 
and without security, although exactly similar to aU the depreciated State 
notes, preserved their value, and were received with the same confidence as 
those which had been issued while the bank was under Law's direction." 
Es&ii Politique^ t. ii., p. 11. 

X The fact that the regent redeemed the shares of the General Bank by 
paying f or^them in coin has been discredited by some writers, but the assertion 
IS made poBitivelyiin][the declaration by the king. 



812 QUABTEBLT JOURNAL OF ECONOMICS 

choioe between the two forms of notes was thus nominally 
afforded the public. The new phrase in the notes, livres 
toumaiij meant merely the variable fraction of the louis 
called the livre, which was subject to constant changes 
in value. Accounts in bank were to be exempt from ex- 
ecution. January 6, 1719,* Law was appointed director 
of the Royal Bank. 

Nothing is said in the declaration of the outstanding 
circulation of the General Bank; nor, so far as I have 
been able to discover, is it disclosed in any government 
document. Authors have set the estimate as high as 60,- 
000,000 livres and as low as 12,000,000 livres ; and, curi- 
ously enough, the authority for these different amounts 
appears to have been derived from one source, — the 
decree of April 22, 1719.t 

The system was now launched and floating on the tide 
of fortune. The Royal Bank would seem to have been 
the complete realization of Law's original scheme. It 

* DahMitohaiiip, t. t., p. 176. 

t Sir Jamee StevArt, in his Inqmrp into the PrindpleM qf Political Ecomwqf^ 
Yol. ii., p. 244, says 69,000,000. The Baroo Nerro says 60,000,000. John 
Philip Wood, in his Memoin (^ the Itfe <^ John Law, says that Law endear- 
ored to obtain pemiisrion to oontinne the General Bank at the same time that 
^M Royal Bank should be set on foot ; but the request was refnsed. He gires 
59,000,000 as the amount of outstanding notes, and refen to the deeree of 
oounoil as his authority. Levaawur (p. 52, note 3) giTSS ^ae decree of April 22, 
1719, citing it from Forikmnais, as the authority for his statement that 
51,000,000 had been iaroed before December, 1718. On page 196, the 51 is 
oonyerted into 61 ; and, in his record of the issues of the Royal Bank (p. 197)« 
the 51,000,000 authorised in this decree are entirely omitted. Daire, citing the 
same decree as his authority, says, ** Whilst the General Bank, a priTate 
establishment, had, during its thirty-two months' existence, issued, at most, 
12,000,000 of notes, it needed only fiye months for the Royal Bank to put forth 
the amount of 59,000,000." ioonomuU* Financiers, p. 433. I think I can 
trace the manner in which these different results have been derired from the 
same document. The decree of April 22 is an important one, and abstracts of 
it are given by all the authorities. An investigator, working from an abstract, 
might easily be misled. The decree authorised the issue of 51,000,000 notes« 
which, it was said, would bring the issue up to 110,000,000. Law had argued 
that credit increased capital tenfold. His ci^ital was 6,000,000. 59,000,000 
were outstanding. This was almost exactly the sum which Law had pro- 
pounded as the increase which his capital would receive from credit. Inter- 



AN HISTORICAL STUDY OF LAW*S SYSTEM 313 

was, as the regent intimated. Law's first plan ; although 
here again we are met with doubts, and with assertions 
that Law was opposed to this change.* To the bank had 
been added the Company of the West, with whatever 
additional strength was to be gained therefrom ; and Law 
could at last test the principles which he had announced. 
Money furnished the life-blood of a nation. Paper was 
even better than coin. The supply that could now be 
furnished need only be limited by the demand. In addi- 
tion to the ordinary channels of business, he had at his 
command the development of Louisiana, from which to 
gain that activity of circulation which was his measure 
of prosperity. 

Notwithstanding the evident favor shown by the regent 
to Law, there was as yet no movement in shares of the 

preting Law's lang^iaere literally, it was an easy inferenoe that the outstandings 
circulation was that of Law's bank. Levaaseor has evidently inyerted the 
figures of the notes issued and notes outstanding. He worked, in this instance,, 
from Forbonnais, instead of from the decree which is given in Duhantchamp, 
t. T., No. 18. In the motif of the decree, the dates of the several issues 
which make up the 59,000,000 are given. They were January 5, February 11, 
and April 1. The decree of January 5 — Duhautchamp, t. v.. No. 16 — 
authorized an issue of 30,000,000, of which 12,000,000 were in the form of 
20,000 notes for 100 ^au de banque each. These crown notes, according to the 
decree of April 22, were never issued ; and the order to issue them was then 
revoked. Here we find the 12,000,000 which Daire says was Law's outstand- 
ing circulation. Paying no attention to the statement in the decree that they 
had never been issued, Daire adds them to the 59,000,000, and puts the out- 
standing circulation at 71,000,000. My own conclusion is that Daire was right 
in fixing upon the 12,000,000 as the circulation of the General Bank. I infer 
that this aniount, issued payable in ^cus de banque, must have been for the 
purpose of redeeming the outstanding circulation which was of like character ; 
but, when it was found that the public acquiesced in a redemption in the 
Hvres toumois notes, they were withheld, and subsequently cancelled. 

***Law eluded a proof which he had solicited, and proposed simply to 
replace 900,000,000 capital of rentes by the creation of an equal amount of 
notes having the function of money, without interest and without redemption." 
If the bank was to prevail, he wished it put under ** protection of a particular 
government, composed of four superior tribunals, — Parliament, the Chamber 
of Accounts, the Court of Aides, and the Court of Moneys." L^ontey, t. i., 
p. 298. Martin, who, as I have elsewhere stated, follows L^ontey closely, 
repeats this statement. The treasures of the French archives were at lA- 
mcmtey's command. Since his day, it is probable that some of the documents 
from which he quoted have been scattered or destroyed. 



1 



\ 



814 QUARTERLY JOURNAL OF ECONOMICS 

Company of the West. K other explanation for this be 
needed than the lack of success of previous monopolies 
of this character, it may perhaps be found in the fact 
that the Paris Brothers, prominent Swiss bankers, living 
in Paris, had in September, 1718,* through D'Argenson, 
secured the contract for the collection of the revenue 
known as the Fermes G^ndrales for the sum of 48,500,000 
livres per annum. Following in Law's footsteps, they 
had secured a decree from the Council of State organ- 
izing a company based upon the contract, with a capital 
equal to that of the Company of the West, the shares 
being 1,000 livres each. The shareholders were to par- 
ticipate in the profits or losses, and the books were 
thrown open for public subscription. Like the Com- 
pany of the West, the shares were to be paid for in 
discredited government obligations. These would bear 
four per cent, interest. The possible profits from the 
contract not only seemed much better assured than 
those from the commerce of Louisiana, but there was no 
reservation of the first year's interest to develop the 
scheme. The shares of the anti-system, as it was oaUed, 
are said by most writers to have been better received than 
those of the system.f Many of the subscribers to stock 
in the Company of the West were at this time delinquent. 
The circumstances were not such as to tempt Law to en- 
force the forfeiture of the first payment ; and it was an- 
nounced in a decree, September 22, :|: that the time for 

• Dahaatchamp, t. t., No. 13, p. 147. 

tin Noyember, 1718, aooording to Fantin des Odoards, the two were 
quotable at the same rate. Histoire de France^ par Antoine-^tieime-Nioolas 
des Odoards Fantm, Yicaire G^^ral d'Embnin, Paris, 1789, yd. i., p. 206. 
This author, who is grenerally spoken of as Fantin dee Odoards, was an indus- 
trious gleaner of facts ; and he griyes details concerning eyents and quotations 
of market rates, not to be found elsewhere. Notwithstanding the fact ihat 
his confusion of statement and eyident lack of understanding of teehnioal 
terms haye giyen him a reputation for being unreliable, I feel that, within oer- 
tain limits, he may be used as authority. 

t Recueil tTArresU, p. 68. 



AN HISTORICAL STUDY OF LAW'S SYSTEM 315 

paying the four-fifths, due November 1 in billets cTStat, 
of which 22,000,000 remained unpaid, had been extended 
to January 1, 1719. It was evident that public atten- 
tion must be attracted by other means. 

In the fall of 1718 began the series of announcements 
of privileges granted to this favored company, which, 
judiciously scattered over a series of months, gradually 
stimulated public interest in its affairs, until all of France 
was plunged in a delirium of excitement ; and the high- 
ways leading to Paris were thronged with people from the 
provinces and from foreign countries, hastening to the 
capital in the hopes that they might still be in time to 
secure shares. On the 1st of August, 1718,* the contract 
for collecting the revenue from tobacco was awarded to 
the company for six years, at the rate of 4,020,000 livres 
per annum, an increase of 2,020,000 livres over the pre- 
vious compensation. On the 4th of September,t the 
period of the grant was extended to nine years. Decem- 
ber 15,:|: the privilege and the supplies belonging to the 
Company of Senegal were purchased. December 27, 1718,§ 
branches of the bank were established at Lyons, Rochelle, 
Tours, Orleans, and Amiens. || Each of these branches had 
two oflBces, — one for the redemption of notes in coin, and 
the other for the delivery of notes for coin. It was also 
ordered that, after a given time, token money should not 
be received in payments of above six livres, and that 
silver should not be used for payments which exceeded 
six hundred livres, in cities where the bank had an office. 
No protest was to avail against payments in notes in cities 

• Becueil d'ArruU, p. 60. t Ibid,, p. 66. 

X Dnhantchamp, t. yi., p. 144, Art. Y. of the decree of the month of July, 
1720. 

$ BecueU O^n^ral, t, xzi., p. 107, note. See also Forbonnais. 

II The author of Vie Priv^e de Louis XV., ^ Londres, 1781 (said to be 
Monffle d'Augrenrille), caUs attention (t. i., p. 59) to the fact that, in the cities 
where there were parliaments, bank ofBices were not established. Lille, 
Marseilles, Nantes, Saint-Malo, and Bayonne were thns distingnished. 



316 QUABTEBLT JOURNAL OF ECONOMICS 

where the bank had an o£Sce, as the notes were always 
redeemed at sight. February 11, it was ordered that notes 
could be redeemed in gold as well as silver, redemptions 
and payments to be at current rates.* January 5, Febru- 
ary 11, April 1, and April 22,t decrees were promulgated 
authorizing the issue of notes. A portion of those issued 
January 5 were authorized to be stipulated in Sens de 
banqtte. In the preamble to the decree of April 22, it was 
stated that the public preferred those payable in livres 
toumois. The notes payable in Scus de banque^ which had 
been authorized, but not printed, were not to be prepared ; 
59,000,000 payable in livres toumois had been issued; 
61,000,000 more were authorized; 100,000,000 livres, it 
was thought, would be enough for purposes of trade ; and 
10,000,000 more were to replace indorsed notes. The 
phrase " weight and standard of this day " had disappeared 
from the notes with the change to livres toumois ; but it 
was ordered in the decree of April 22 that bank-notes 
should not share in the diminutions to which silver was 
subject, and that they should always be paid in full. 
Some doubt exists as to the responsibility for the change 
in the tenor of the notes and the insertion in the decree 
of the clause concerning diminutior^. Louis Blanc, an 
ardent admirer of Law, says that Law was responsible, 
and explains his apparent inconsistency by saying that he 
feared the regent, and was opposed to giving the notes of 
the Royal Bank any features which could make them pref- 
erable to coin. He adds that the regent restored the omis- 
sion by inserting in the decree the clause making the 

* Jobez, La France sous Louis XF., t. ii., p. 100, refers to the decree of 
Febmary 11, saying, ** It removed from coin a part of its value, by wanung 
the public that the bank would take gold and silver only at market rates." 
An abstract of this decree is given, Recueil G^n&al, t, xxi., p. 107, note. 
Forbonnais says the decree of February 11 ordained that the bank should 
receive and pay out specie — gold as weU as mlver — only at the value and 
following current rates at which it was received in trade. 

t Encudop^die MHhodique^ title " Commerce," sub-title " Banking." 



AN HISTORICAL STUDY OF LAW'S SYSTEM 317 

notes incapable of diminution. Dutot,* a defender of 
Law, says that the clause in the decree which declared 
the notes fixed and invariable was opposed to the senti- 
ments of Law. Forbonnais, who was free from prejudice, 
says that Law and his friends protested afterwards that 
this clause was inserted against his advice ; but Forbon- 
nais proceeds to argue that Law, then in the height of his 
power, must be held responsible for it, even though it be 
in direct opposition to the terms of the decree of Feb- 
ruary 11, already referred to. At any rate, Forbonnais 
thinks it cannot be charged to Law's enemies, to whom 
he had not dis61osed the secrets of the system. Daire, an 
opponent of Law, looks upon it as an adroit method of 
forcing coin to the bank for conversion into notes, through 
the instrumentality of impending diminutvm9. Levasseur 
takes the same view of it, and concludes that Law was 
then too powerful to escape responsibility.f 

As a further protection for bank-notes, government 
officials in cities where the bank had offices were ordered 
to receive and redeem the notes, and to keep their bal- 

* Riflexwns Politiques sur les Finances et le Commerce^ reprinted in Daire's 
^amomiste* Financiers, P&ris-Dnyemey opposed the doctrines of Datot in 
a work entitled Ezamen des Reflexions Politiques, etc., k La Haye, 1740. 

t The idea of applying the preposteroos system of aufpnentattons and dind- 
nutions to notes seems absord and impracticable. Yet Datot says, ** It is in 
the power of a legislator to increase or diminish the quantity as weU as the de- 
nominational value of notes.** Bearing this doctrine in mind, the change of 
the notes from stipulations in ^cus de bangue — weight and standard of this 
day — to Uvres Umrnois carried with it liability to augmentations and dimi- 
nutions, — a danger to which. Law had prcTioosly argued, notes would not be 
subject. This chang^e had been brought about adroitly, by pretending to offer 
the public a choice between the two forms of notes in the first issue, but 
actually putting forth only the Uvres towmois notes. The decree of February 
11 is in harmony with this policy. The exemption of the notes from dimi- 
mttions by the decree of April 22, is a direct revenal of it. Afterwards, Law 
availed himself of this exemption to draw coin to the bank, by notifications of 
in4»«nding diminutions. For that reason, it has been argued that he &- 
Toced the exemption. No interpretation of these eyents is consistent with any 
finanftial theory. It seems probable that the quiet abandonment of notes 
payable in coin of " weight and standard of this day ** was due to Law. He 
had availed himself of such notes to buoy the General Bank. He had argued 



818 QUABTEBLY JOURNAL OF ECONOMICS 

ances exclusivelj in this form, and were also forbidden 
to remit coin to Paris except for the benefit of the bank. 
The power of the Scotch adventurer was now an ac- 
complished fact. His skilful manipulation of the cour- 
tiers, his adroit management of the regent, and his won- 
derful mental resources had enabled him to adapt his 
schemes to the temporary requirements of the situation. 
He had conquered success out of a series of difficulties 
and obstructions which could only have been oyercome 
by a man endowed with a sanguine temperament and 
gifted with extraordinary powers of persuasion. Having 
subdued the Court and secured a foothold in the commer- 
cial world, he next turned his attention to the task of in- 
teresting the people in his scheme. 

Andrew McFablakd Davis. 



in adTADoe Uutt notes would be more stable tluui coin, in order to oonvinoe 
donbters. But, when popular confidence in bank-notes had once been estab- 
lished, he could afford to abandon that form of note. The decree of April 22 
d«Botes the interposition of another hand. The fact that Law afterwards 
availed himself of a feature of the notes apparently inserted against his will 
merely shows his power to make use of circumstances. 



GOLD AND PRICES SINCE 1878. 



Much of the diGFerence of opinion as to the significance 
of recent movements of prices is due to the fact that the 
value of gold is a ratio which varies with a variation in 
either of its terms. Whether commodities fall in relation 
to gold or gold rises in relation to commodities, in either 
case the value of gold has risen. The same phenomena, 
therefore, may be due to radically different causes. So 
that, admitting the fall of prices, it is said, on the one 
hand, that the rise in the value of gold is due to some 
cause affecting gold itself, such as scarcity; and, on the 
other hand, it is claimed that the fall in prices is due to 
causes connected solely with commodities, and not with 
gold. 

The believers in the scarcity value of gold substan- 
tiate their position by reference to the falling off in the 
annual production of gold ; the unusual demands for gold 
since 1878, by Germany, Italy, and the United States; 
stringencies in the money market; the increased use of 
gold in the arts ; the claim that the fall of prices is gen- 
eral ; the exceptional character of the depression of trade 
since 1878; the general existence of low wages, profits, 
and rents ; and the absence of any progress since 1878 in 
the means of economizing gold and silver. These opin- 
ions have been prominently associated with Mr. Robert 
Gififen,* the statistician of the English Board of Trade, 
and Mr. Goschen,t the present Chancellor of the Ex- 
chequer ; while the evident connection of the main propo- 

^ Journal qf the Suuutkal Society (London), Marah, 1879. 
t Journal qf the InttUuU of Bankers, April 18, 1883. 



4 



820 QUABTEBLT JOURNAL OF ECONOMICS 

sition with bimetallism has given it a semi-political char- 
acter> and many supporters in both Europe and America. 

II. 

Inasmuch as the rise in the value of gold since 1873 is 
in proportion to the fall of prices, it is a matter of some 
importance to look critically at the facts in regard to 
prices. With this object in view, the more important 
tables of prices since 1860 have been collected in the 
Appendix, with explanations as to the methods of compu- 
tation, sources, and reliability. It is hoped that a com- 
parison of the diverse methods and results of these tables 
will serve a useful purpose. 

Hitherto, the figures of the London EcanomUt for 
twenty-two articles have been almost universally used as 
evidence in regard to the movement of prices ; but it is 
time that the worship of this fetich should cease.* Of 
late, much more trustworthy tables have been published. 

In Chart I., a comparison is presented of the prices in 
Great Britain, Germany, France, and the United States. 
The untrustworthiness of the Economist table as a basis 
for inferences in regard to causes affecting the whole 
world will be seen at a glance in the years 1862-67. The 
table of Mr. Sauerbeck,t however, which gives the prices 
of thirty-eight articles, but all of raw produce, furnishes a 
somewhat better view of the movement of English prices 
to the present day. The French prices J show a less rise 
to 1873 and a less fall since 1873 than the English figures, 
which accords with what we know as to the exemption of 
France from the violence of the crisis of 1873. The table 
of American prices cannot be depended upon. It is in- 

•For detailed criticism, see Appendix, Table A. 

t For the relative value of these tables, see the notes in the Appendix. 

t The number 100 in this table corresponds on the chart to 123.6 of Soet- 
beer s table, which is the avoragre of the Utter's numbers for 1865-69 (the yean 
used as a basis in the French prices). 



GOLD AND PRICES SINCE 1873 



321 



\ 





1 8 £ S 1 g 1 S 1 




si§Sal§^S 




;yjiD|i --TI -; ■" """_ii|tc _^ L_^. 








fif/ ^±i£ ^ ^ " — " ^ *H I^^^^^^- 




/#« x^j^- i r K -^ 




j«<-j *£--^ ^ ^ S^s^'aH^^^- ^^^^ 




'"■* ^^^^^^-<-- - -- ^ajri^'s^. _ ^. 




v«* :::::::::::_s;5i£±: : : :^;^3&- - ■ -- 




^^^^i - ^^ f^i^Sg^-- 




/*« :::::::: ::::-:!Ss::::-«:^- ;>igS3 -- ^ ^ 




/«M E a fi^S^s 




jffcn ^h -^ S5i*i:''^* 




/im ^_^^_ -^ ^ il^^sa 


«„ ^^^IS^ cJff '?^ 


'*''::::::: ::::::±^^^tMB : :^t*.2*^ 




/*« ^"^7*^ w <> ^ ^^ 


^^ ^^„ „_^^,^. , ^, -, -"1- « ^ ,„„_ 


***:::::±^„^ ^zs^^S:^ "ti ^z^z %' : ::: 




/see i"_L ^ir^^^ i — 3* '- '~^~ — 




/JK/ - ___„„„ . ^/ ^ * „ i, _ ^ _ ,.- 4 _ _ jl 




'"' ip^--> *sS z ^ H -fl 




SSf£2 t ' "■fti« t-l-!i4l-t+'^ D 
















.iwd iF":":^: , __ :._it^5 ^ i^ ^ — ^"-^-x 




^*** ^ ^ rt#-z — ^ ^^i!*^ 




,«, i_ , , ^ _, ,, . . ,. . . J^ ■ J Z^^ Zh^ ^ r« ^ 








/» jt i—j j_ i N L I ^ ' J j' 




^'^s^.iL^ ^ . -I4JU5 ^-^ ^i-"^* 




/iWJ _5 . -i 17 J ^"^ .--■'^"1 








>/tff ^_L_^_^j ^ - J &^i;^ "' ^ -1 -4- 








'«'::::: ::::::J^-*i;'^: o ' "-" 












/Itli \ A 1 P^ ^^ ,>■' ^ 




'pv ♦. . ., _j_.. ... rii Sl^ ^ ?^ n 




^ _ _ ^^^ _^ !jsj_ L , :r ^ < 




/WJ ^ ^ ^ ^ , ^ , L^ _U -»,'; '.i ^ \i m r^ J*l _£_ 








/^jv -<'? tk"'/ ^ CO c: 5 .^ ""^ 




/-•^ \l^^^-:_j _lx ^-^ S ^ ? 5 -1 




^"^ :. ::^2 if jZ3 *^ ^ S ^ * . 




fnG ' i I f -i^ ^.^ - , p, r> 1^"^ 




''^^ 2^^^ T tz it = -'^ =n ' :: 




fS?y -V^^i^H. it ^it OD , Ci 2 III 




K^^ -sE S^ m "^ » 2 J 




/Fjff — ^^ ^si.'^Si — fn c^ c 5 In 












^fja __:Jr-iP^^^ ^ J« at - - ^ 




^'™ *.. jij« "T--^ ^^ 




/»,::_ Hrt:T^^4i^4t it^ I > 


V 


/nr/ H- ^w r;*^^ ^ -^ - -' ^ 


f$sz-^ ^- j-^^ i - ^ : : 


in ' , ' » 4 I 


^pjj 7Ty ' 




Vf4 . . . . . f' J - '^ ^ .""^ . ' 


^^i ^.t.i - ^^ JZl 4: ^Z^ ^ JTI^" 


rjl^^^^^^ ^^^^ ^^ HI ^ \^ _^ .. ^ 


"V 1 S II ^^ 1 § 1 5 



\ 



822 QUABTEBLT JOURNAL OF ECONOMICS 

serted only for the sake of comparison. The Hamburg 
prices, published by Dr. Soetbeer, in the second edition of 
his Materialien (1886), furnish the most satisfactory, accu- 
rate, and complete collection of prices yet made. It will 
be seen that, while Sauerbeck's English figures * show a 
greater fall since 1873 than the Hamburg prices, they do 
not fall so low in 1885 as the EamamUt prices. The 
very important fact to be observed, however, from the 
Hamburg table is that prices in 1885 were still 10 per 
cent, higher than they were before the discoveries of gold 
(1847-50) ; and it is significant that prices seem to have 
fallen less as we go to tables which include a greater 
number of articles. There is thus a difference of about 
30 per cent, in the results of the Hamburg and Eeonomut 
table, much to the discredit of the latter ; and, in fact, 
the EconomUt table is not of a kind to be compared with 
the other. 

The separation of the movements of prices in special 
groups of commodities in the Hamburg tables, as presented 
in Chart H., shows a striking divergence in the prices of 
agricultural, animal, mineral, and manufactured products. 
The eye is at once struck with the great rise in the prices 
of animal and agricultural products since 1850; while 
there has been the expected fall in the case of manufact- 
ured goods, accompanied by a surprising fall in the prices 
of mineral products. 

Among other illustrations f of economic principles to 
be seen in these charts, there is one which Englishmen 
may well consider. It seems possible that English prices 
have fallen since 1873 more than prices in other countries. 
If so, may this not be attributed to a readjustment of the 
equation of Internation Demand, due to a lessened de- 

* The standArd 100 in Sanerbeck's table represents the aTen^ of the 
yean 1866-77, which correBponds on the chart to 128.7 of Soetbeer*s table. 

t A rerifioation is given of the principles laid down by Mr. Caimes, Lead- 
ing Prindplet^ pp. 117-46, on derivatiTe laws of value. 



OOLD AND PBJCES SINCE 1873 



828 




324 QUARTERLY JOURNAL OF ECONOMICS 

mand in otber countries for England's products compared 
with England's demand for the products of other coun- 
tries ? Many complaints have been heard in England of 
the increasing competition of Grermany, France, and the 
United States in foreign markets ; for only since the war 
of 1870 have Germany and France given full play to 
their modem industrial spirit.* In fact, evidences are 
multiplying to the effect that the demand for English 
goods has not grown in a sufficiently gratifying manner. 
K this explanation be given full weight, it may suggest 
that other causes are at work to bring about a fall of Eng- 
lish prices than the scarcity of gold. Too often, the 
reasoning on this subject takes for granted that what is 
true of Great Britain is true of all the rest of the world. 
It will not by any means be admitted that the lower 
range of prices, when once reached, has prevented pros- 
perity t in other countries. 

III. 

Granting a fall in prices since 1873 of 20 per cent., 
yet it will not be possible to reason directly from a fall of 
prices to a scarcity of gold. But this is the import of 
Laveleye's argument^ in answering Mulhall, — who had 
gone to quite as great an extreme in the opposite direc- 
tion, and had denied § any connection whatever between 
prices and the quantity of the precious metals, — for 
Laveleye even classes Mill among the believers in what 
the Germans call the QuantitdtS'theorie^ by quoting his 
words: || "The value of money depends, eaeteris paribuSy 

• Cf. Fowler, Appreciation qf Gold, p. 34. 

fThe clearings in the United States for October 1, 1886, were one-fourth 
larger than for October 1, 1885, at the lower range of prices. 

t Contemporary Review, May, 1886, p. 632. 

i History qf Prices since the Tear 1850, pp. 138, 139; and Contemporary 
Review, August, 1885. 

II Layeleye strangely omits the succeeding sentence : **In any state of 
things, however, except the simple and primitiye one which we have suppoaed. 



GOLD AND PRICES SINCE 1873 825 

on its quantity, together with its rapidity of circulation. 
. . . AA increase of the quantity of money raises prices, and 
a diminution lowers them. This is the most elementary 
proposition in the theory of currency, and without it we 
should have no key to any of the others." In his final 
statement, however. Mill plainly says (B. III., chap, xi., 
§3), ^^In a state of commerce in which much credit is 
habitually given, general prices at any moment depend 
much more upon the state of credit than upon the quan- 
tity of money." The devices for economizing money 
which the progress of society has developed render it im- 
possible to say that prices depend directly upon the quan- 
tity of money.* 

Credit in its full development is quite modem, and its 
relation to prices is not always carefully defined. Mill,t 
for example, prefaced his discussion of the effect of credit 
on prices by the remark : " It is not, however, with ulti- 
mate or average, but with immediate and temporary, 
prices that we are now concerned." Now there is no 
conceivable moment but that of a total stoppage of trade 
when credit is not in active operation; and as credit is 

the propodtioii is only true, other things being the same ; and what those other 
things are which must be the same we are not yet ready to pronoonce ** (B. m., 
chap, Tiii., §4). In his final condosion, quoted above by me, he pronoonoes 
what they are. 

* Frewen, Nineteenth Century ^ October, 1885, p. 595, carries the error stiU 
farther by claiming that prices change with the production of gold. One can- 
not assign mnoh weight to Mr. Frewen, when he declares that capital is spent 
rather than aoonmnlated in the United States, because of the heavy taxation I 
(p. 601). Dr. Soetbeer, McUerialien, p. 81, reminds us that both Huskisson and 
Jacob attributed the depression which prevailed in Europe after 1815 to a 
scarcity of the precious metals. He also mentions an interesting book by 
J. Helferich, published in 1843, which combated the Quantitdts-theorie^ and 
explained that credit can separate the function of a medium of exchange irom 
that of a measure of value, and can serve as the former without affecting the 
latter. Most German bimetallists (excepting Dr. Arendt) agree with Messrs. 
GKffen and Qoschen in attributing the fall in prices and the depression of trade 
to the scarcity of gold. But, on the other hand, Bourne, Jmtmai qf Statistical 
Society^ June, 1879, p. 417, who denies the scarcity of gold, claims, with Mul- 
hall, that the quantity of gold has no relation to prices. 

tB. III., chap. xii.,§l. 



1 

i 



326 QUABTEBLT JOURNAL OF ECONOMICS 

purchasing power of a highly eflBcient kind, often prefer- 
able to actual coin, it must be regarded as afEecting prices 
not temporarily, but always, with greater or less force. 
At some periods it may be more actively used than at 
others.* In truth, in society as it exists to-day, the gen- 
eral level of prices for considerable periods (suflSciently 
long to permit the effect of changes in the business habits 
of the community, or changes in the existing stock of 
gold, to be felt) must depend upon a combination of the 
quantity of money with the various forms of credit. The 
two are inextricably bound together. So, therefore, the 
level of prices (so far as it is affected by the offer of 
purchasing power) depends on the expansion or contrac- 
tion of two factors, quantity of money and credit, each of 
which may change to a considerable extent independently 
of each other. Both may increase or diminish together, 
or the gain of one may offset the loss of the other. A 
great collapse of credit, for example, without any change 
whatever in the quantity of the precious metals, might 
lower the general level of prices ; and, if this demoraliza- 
tion of confidence was sufficient to alter existing condi- 
tions of mind in the commercial classes, it would produce 
an effect over a considerable period of time. On the other 
hand, a period within which there occurred not only an 
enormous increase in the quantity of the metals used for 
money, but also an unusual expansion of credit, would 
show an advance of prices quite out of the natural order 
of things. Such a period was that from 1850 to 1878. 

* Between 1833 and 1839 prices rose 22 1-2 per cent., and between 1839 and 
1844 feU 44 per cent. ; and ^^this grreat oecillation,'* Jevons asserted, ^*wa8 
entirely due to the greneral expansion of trade and credit, and to its subsequent 
collapse.** Contemporary Review, May, 1881, p. 752. Again, in 1857, at a time 
when the mines were jrielding unprecedented quantities of gold, a collapse of 
credit produced a faU in prices of hdly 15 per cent. 



OOLB AND PRICES SINCE 187S 



327 



IV. 

The series of events which led to the expansion of trade 
and the collapse in 1878 were unprecedented in their mag- 
nitude. The greatest production from the mines which 
the worid has ever seen was pouring gold into the chan- 
nels of trade. In spite of the expansion of commerce and 
the absorption of gold by France, the new gold must have 
affected prices. But this set in motion other forces which 
had an effect on prices. The gold discoveries themselves 
created a spirit of adventure, and stimulated high hopes 
of gain in unusual ways. Then, too, a period of rising 
prices breeds speculation. The figures of home and for- 
eign trade were swelled by the higher range of prices, and 
added to the buoyant feeling, under the inspiration of 
which new enterprises were eagerly entered upon. The 
Crimean War and the extraordinary rise of agricultural 
products (see Chart II.) aided the movement, which re- 
ceived but a partial check in the panic of 1857. The war 
in Italy of 1859 was followed by the Civil War in the 
United States in 1861. The latter produced a great rise 
in the prices of cotton, tobacco, and breadstuffs* in 
Europe ; and the issue of inconvertible paper drove gold 
out of the country. Then Italy also gave f up her specie 
after 1865. The war between Prussia and Austria added 
to the abnormal extension of trade, which in 1866 again 
received only a partial check. The years from 1867 to 
1873, in the United States, witnessed an unlimited expan- 
sion of extravagance and overtrading, such as has been 
seldom equalled, accompanied by excessive railway build- 
ing. Our imports were out of all proportion to our abil- 
ity to pay for them.f In this period, also, came the Fran- 



* This 18 seen in the Economigt figures, in Chart I. 

t The writer in the Edinbwrgh Review for Jnly, 1886, p. 34, estimates the 
addition of gold to Europe from the United States and Italy as aboat $500,- 
000,000. 

t Of. Caimes, Leading Principles, pp. 364-372. 



328 QUABTEBLT JOUBNAL OF ECONOMICS 

co-German War of 1870, and the distribution of the 
indemnity of war by Germany. The extraordinary and 
exceptional demand for commodities in periods of war, at 
the very time of the great destruction of wealth, produced 
an unhealthy state of affairs; but on the outside all 
seemed fair, and men had begun to believe that prices 
were fated always to rise. The speculation in metals (see 
Chart II.) in 1878 was of an unparalleled kind.* Noth- 
ing, in fact, marks this period from 1850 to 1878 (as com- 
pared with the period from 1878 to 1886) more distinctly 
than the extreme variations in the rate of discount at the 
great banks of Europe. There were all the evidences of 
an unhealthy and abnormal condition of affairs. But the 
unchecked demand, when the actual power to buy had been 
greatly impaired, could not go on forever. When it was 
once foiind that men had been creating liabilities beyond 
their means to meet them, the end had come. The crisis 
of 1873 was the painful return to a consciousness of the 
real situation, after a prolonged fever of speculation for 
nearly twenty years, which had spread over many coun- 
tries. The effects were the more serious because the 
disease had got such great headway. The period since 
1873, on the other hand, is stamped by a radical change 
in methods of business ; and a new epoch in production 
practically dates from that year. The peculiar changes 
in the organization of industry will themselves sufficiently 
explain any exceptional characteristics of the present 
period. 

Those commodities, moreover, for which the demand in 
the period of overtrading had been most extended (and 
which were of a character capable of rapid production) 
would be the ones in regard to which, after the collapse, 
there would be the greatest difference between the power 
of production and the now lessened demand, based on 
normal wants. Demand and supply had been thrown out 

*See Leroy-Beaulieu, Revue des Deux Mondes^ May, 1886, p. 393. 



GOLD AND PBICJS8 SINCE 1873 329 

of their reoiprocal adjustment. Just as when a large 
building, erected by fitting one timber or board to an- 
other, is levelled to the ground by a tornado, exactly the 
same building can never again be reconstructed out of 
the old materials, — for reciprocal parts are wanting; — 
so, after a serious commercial disaster, like that of 1873, 
producers must make entirely new estimates as to the 
extent of demand, and supply must be adjusted to new 
conditions. In this way, a great derangement of trade 
and credit will produce unequal effects on different com- 
modities. 



To support the claim that we are now dealing with 
practically new conditions of production, no facts of the 
industrial situation since 1873 can be adduced which are 
more convincing than those relating to improvements and 
new sources of supply. The period following a great 
financial upheaval is naturally crowded with improve- 
ments in processes and in methods of lowering the cost 
of production. Necessity becomes the mother of inven- 
tion. The extent to which producers have been driven 
by the fierce competition since 1873 to cheapen produc- 
tion leads to the inquiry how far the fall of prices can 
be accounted for by influences connected solely with com- 
modities, and not with gold. If these influences have 
been widely extended, it wiU be strong evidence that the 
scarcity of gold has had less effect than some suppose. 

In order to take a definite point of departure, I shall 
select from Mr. Goschen's list of articles* twenty-three 
which have fallen in price, and see whether the fall can be 

* Joiamal qf Institute qf Banken, May, 1883, pp. 277-279. These oommodi- 
ties, be it obeerred, are praotioally the same as those gireai by Mr. GiiFen (see 
Appendix, Table E) to show the effects of a scarcity of ^d in lowering prioes. 
I have omitted from Mr. Qosohen's table only cocoa, rice, indigo, cotton, hides, 
jnte, and hewn timber ; of which cocoa, cotton, and hides have practically not 
fallen at all ; rice and jato are affected by the fall of silyer ; while indigo and 
timber are subject to peculiar flnotuations. 



330 



QUARTERLY JOURNAL OF ECONOMICS 



accounted for by conditions affecting each commodity 
itself: — 



1S7S. 



1888. 



1878. 



BngtHf browiit owt. 
•• w. Indiui ** 
TMuO<miKO&» lb. 

Coffee, O^jlon, cwfe. 
Wbeat, or. 

Pepper, lb. 

Iron, Scotch pif , ton 
L^id. Kni^lrf, <* 
Copper, «« 

Tin, foretgn, *' 

Wool, KnSutfi* lb. 
« Mohair, «" 



U $,4, 

18 6 
S9 

87 



£$.<L 



S16 

6 T 

21 10 

91 

14S 

2 

3 



12 
90 
6 

•to 

t 8 



2 9 
18 15 
65 



Wool, AmtnUlMi, lb. 
«* alpaca, ** 

cochineia, " 

Nitrateof soda, ewt. 
Saltpetre, " 

Ooela, too, 

Paper, 

Staves, load. 

Mahogany, ** 

j Railway earriagea, 
10} Boots and aboes, doa. 

1 4 



20 

29 

25 

18 6 

1 10 8 

1 10 

8 09 

10 

U 12 

111 10 

8 49 



B$.d. 

1 10 
1 3 
10 
12 
19 
18 
116 3 
5 
9 6 
85 
2 17 2 



Taking these commodities in the order given, we find 
the fall in price of sugar due to the revolution in produc- 
tion since 1873 stimulated by the bounties on beet sugar 
in France, Germany, and Russia. The sugar of the West 
Indies was thus deprived of the vast European market. 
The supply was increased in this way without any con- 
nection whatever with the demand. From 1877 to 1882, 
the product of cane sugar increased 38 per cent., and that 
of beet sugar 40 per cent.* 

Tea has fallen in price, owing to the great increase of 
production in Japan, which has risen to forty-five million 
pounds, to the enormous extension of tea cultivation in 
India, and to the addition of large supplies from Java and 
Ceylon ; while, unlike coffee, the consumption of tea has 
not increased in proportion to the increased production.! 

* Leroy-Beaaliea, Revue des Deux Mondes, May, 1886, p. 398. Aooording 
to Fowler, Appreciation of Gold, p. 23, the price of sugar in 1830 was £50 per 
ton ; in 1840, £40 ; in 1880, £25 ; in 1886, £16. He finds. Contemporary Re- 
view, April, 1885, p. 539, the imports of unrefined sngrar from Germany into 
England in 1884 were seren and three-fourths million hundred-weightB as com- 
pared with four and one-half million hnndred-weifirhtB in 1882. 

t Tea is also bought with silver in the East, and, like jute, its gold price 
falls ; while the lowered freights have also had a serious influence. The ex- 
ports of tea from India have quadrupled since 1873. See Sauerbeck, ibid,, p. 23. 



GOLD AND PBICE8 SINCE 187S 331 

Coffee has not fallen in price to the extent shown in 
Mr. Groschen's table. The average price at Hamburg in 
1866-70 was expressed by 142; in 1876-80, by 207; and 
in 1881-85, by 139. Altiiough the total production has 
increased,* the variations in the seasons cause violent 
fluctuations. The faU in the price of Brazilian coffee is 
accounted for by the extension of railways into the inte- 
rior, which has dispensed with the carriage of coffee on 
mules to the seaports. 

A fall in the prices of wheat and agricultural products 
seems to strengthen Mr. Goschen's argument, for com- 
modities affected by the law of diminishing returns have 
a tendency to increase in price. A fall in the prices of 
such articles, therefore, might suggest a general cause, 
like the scarcity of gold. But at no time for centuries 
have there been in operation stronger forces to oppose 
this law than in recent years. The tremendous gains in 
cheaper transportation have, as never before, opened up 
new and superior wheat-growing soils,! so that the " mar- 
gin of cultivation " for Europe is now found in India and 
the United States. The effect of this has been, irrespec- 
tive of freight, to raise the margin of cultivation for 
Europe. It is only strange that the price of wheat has 
not fallen more seriously. Improved methods of farming, 
moreover, have enabled each acre to produce more than 
in 1870. Even in Europe, Leroy-Beaulieu thinks that, in 
the last twenty-five years, food has increased faster than 
population. 

*Leroy-B6»iilieii, iUd., giiTes the prodiiotion as follows : 1855, 321,000,000 
tons; 1865, 422,000,000; 1875, 505,000,000; 1881, 588,000,000. The deUveries 
of Rio coffee in New York in 1873 were 68,863 tons, bnt in 1886 189,319 tons. 

t The United States in 1870 had 88,000,000 acres planted with wheat, 
which was increased to 157,000,000 acres in 1884. India, moreoyer, increased 
her acrea^ from 18,000,000 in 1870 to 25,000,000 in 1884 ; while Europe planted 
440,000,000 in 1870 and 482,000,000 in 1884. Leroy-BeanUen, t6iV/., p. 396. Nen- 
mann-Spallert, Uebersickten der WeUwirUufhaft^ p. 155, states that from 1869 
to 1879 the production of cereals in Europe was actually doubled ; while the 
imports of srnun in 1869-70 were yalned at $409,000,000, and in 1879 at 
$817,000,000. 



332 QUARTEBLT JOURNAL OF ECONOMICS 

Pepper has not fallen, but risen, in price since 1878.* 
For 1871-75 the average prices at Hamburg are ex- 
pressed by 229.7, but for 1881-85 by 288.8. 

The introduction of improvements in the iron industry 
since 1878 shows the tendency to adopt new devices in a 
time of financial depression.! When a business is profita- 
ble, there is no reason for stopping at a great loss each 
day to introduce better processes. In a time of depres- 
sion, a stoppage is no loss. The cost of production of the 
coal, ore, and lime which enter into the production of pig 
iron, writes Mr. Joseph D. Weeks, has been lowered by 
the following agencies : — 

The use of steam-drills instead of haod-drills, of coal-euttiiig ma- 
chines for the pick of the miner, of oompresaed air in plftoe of 
steam, of locomotiye and water carriage in place of mules and of 
human carriage, of dynamite and its associate explosiTes in place 
of powder, of lime and water cartridges instead of powder cartridges, 
of the long-walled system of mining instead of the pillar and room, 
etc In the blast furnaces there have been important changes in the 
lines of the furnaces, — in the methods of blowing and admitting the 
air, of charging the furnaces, of using the metal without allowing 
it to become cold, and of improved hoisting apparatus. In the roU- 
ing^nill, the improvements are almost without number. S<Hne of 
them are growths; that is, a little change to-day, another change 
to-morrow, until in months' or years' time a gradual improvement 
has taken place, as compared with the years before, that would 
hardly be believed without making the comparison. I presume that, 
had I time, I could name at least five hundred improvements, some 
that have decreased cost and others that have improved quality. 

Even in the case of improvements introduced before 
1878, it has been only since then that their use has been 
applied on an extended scale. The manner in which im- 
provements have lowered the price of iron illustrates the 
characteristics of modern industries in general. 

*See, alao, Appendix V. 

t A few yean after the panic of 1873, a large iron manufacturer, after 
lamenting the poor prospects in his industry, said, ** And yet we were never 
making so many improrements as now." 



GOLD AND PRICES SINCE 187S 833 

The price of lead has fedlen, as is well known, because 
of the extraordinary amount of lead liberated in treating 
the argentiferous lead ores discovered in Colorado, Mon- 
tana, Nevada, Utah, and other Western States and Terri- 
tories. The lead, being produced as secondary to the 
yield of silver, was sold for what it would bring,* regard- 
less of the conditions affecting the mines worked solely 
for lead. 

The effect on prices of a sudden opening of new sup- 
plies has never been more marked than in the matter of 
copper. The recent discovery of immense deposits in 
Arizona, Montana, and Spain has caused a revolution in 
this industry. The great yield in the West utterly over- 
whelmed the Lake Superior combination, which formerly 
controlled the market in the United States.t In the 
spring of 1882, copper here fell from twenty-two cents 
per pound in the spring of 1882 to only eleven and a half 
cents in 1885, solely from the causes named. 

Tin has not fallen seriously in price. The average 
price in 1884 was about the same as for 1866-67 at Ham- 
burg. The unusual speculation in metals about 1873 
(see Chart II.) carried the price of tin higher than it had 
been for about forty years, so that the quotation for 1873 
is 30 per cent, above the ordinary prices. Passing this 
by, however, the downward movement since 1873, so far 
as it exists, is fully accounted for by the discovery of 
large deposits of tin in New South Wales, Queensland, 
and Tasmania.^ 

The great decline in the prices of English wool (the 
grade known as ^^ Lincoln"), mohair, and alpaca has a 

*The white lead oorrodera west of the Miasisnppi ^ettins: their lead at so 
low a prioe, the oorrodera on the Atlantic seaboard were placed in a very criti- 
cal position. The prices of paints, also, have thus greatly fallen of late. 

t The Anaconda BCine in Montana led in the shipment to Europe of the 
vast excess of supply, and broke down the price abroad. 

iSee Mineral Besowrees of the United States, 1883-84. I am also indebted 
for information to Mr. R. W. Raymond, of New York. 



334 qUAETERLT JOURNAL OF ECONOMICS 

curious cause. Before 1874, they were used on a vast 
scale in the manufacture of stiff, hard, and lustrous fabrics 
for ladies' wear, of which " alpaca " is a type. But, by 
a sudden freak of fashion, about 1874 these goods were 
whoUy given up ; and their place was taken by soft 
and pliable fabrics made from merino. The change was 
so marked as practically to destroy the demand * for 
English long-combing wools as well as for mohair and 
alpaca. The price of the fine wools, however, has been 
affected by the greatly increased product of Australia and 
South America.! 

Cochineal gives another illustration of the changes in 
modem industries. Cochineal, for which an extensive de- 
mand formerly existed in dyeing and printing cloths, has 
been superseded by the aniline dyes, owing to the dis- 
covery of coloring materials in hydro-carbons, drawn 
chiefly from coal and petroleum. The yarn was weak- 
ened by cochineal, and spinners were glad enough to find 
that the cheaper aniline dyes gave as brilliant colors with- 
out weakening the yam. 

Nitrate of soda and saltpetre fell in price because of the 
excessive yield from the deposits of Western South Amer- 
ica. The exportation of "Chili saltpetre" (nitrate of 
soda) has of late been larger than the world's consump- 
tion.f The average price for 1881-86 is about the same 
as for the years 1874-76. The article, however, is subject 
to great fluctuations of price. 

*LoTd Penzance, Nineteenth Century^ September, 1886, says an English 
farmer who formerly received £1,400 for his yearly dip now gets only £600. 
For very careful tables of prices of English wools and for information, I am 
mnoh indebted to Mr. George William Bond and to Mr. John L. Hayes. 

t Leroy-Beaulieu, ihid,^ p. 397, finds a close connection between the falling 
prices of fine wool and the shipments from Australia, the Cape, and La Plate. 
The number of bales imported in 1864 was 458,000 ; in 1868, 879,000 ; in 1877, 
1,272,000 ; in 1885, 1,740,000. 

X Wagner's Jahresbericht for 1884 states the facts as foUows in metric 
tons: — 

1881 1882 1883 

Exports from South America, .... 319,000 410,000 530,000 

World's consumption, 286,000 372,000 468,000 



GOLD AND PBICE8 SINCE 187S 385 

Coal varies greatly in price from time to time; bnt 
about 1873 it underwent an exceptional rise in price in 
England, while of late the production has been forced in 
an unusual way. In twenty years there has been an in- 
crease of 145 per cent. Apart from the improvements in 
mining already referred to, iron can be smelted with one- 
half the coal formerly required, and so requires less coal ; 
while the growth of English stock companies has stimu- 
lated the activity of producers. 

The industrial gains of society over nature are espe- 
cially prominent in the case of paper. A pulp made from 
the fibre of wood, instead of rags, is used in its manufact- 
ure. Not only is the wood-pulp ground by machinery, 
but lately it is also prepared by a chemical process of de- 
composition. The latter variety is used for the better 
grades of paper. Of two kinds of book-paper which in 
1873 were sold at seventeen and fourteen cents per 
pound in the United States, the price, owing to the new 
methods, has fallen one-half. The use of pulp, more- 
over, has cheapened the rags which are still partially 
used. Where the machine-made pulp is used, as in 
coarser kinds of paper, like newspaper stock, the fall in 
price is still more marked. Manufacturers, also, are 
learning how to use these processes to better effect; and 
the machineiy is being steadily improved. 

The supply of white-oak staves for the United States, 
since the Civil War, has been drawn from Arkansas and 
Tennessee, which have been penetrated by railways. This 
has made a vast difference in their price; but inferior 
wood is also used, which would have a similar effect on 
quotations. 

Mahogany has been affected by exceptional influences. 
The chief supply formerly came from Cuba and San Do- 
mingo ; but during the rebellion in Cuba, from 1868 to 
1878, new sources of supply were sought for in Mexico, 
where operations were stimulated by Ae unusually high 



836 QUARTERLY JOURNAL OF ECONOMICS 

prices about 1878, due to scarcity. After the close of the 
rebellion, Cuba again furnished mahogany; and her expor- 
tations have since been increasing. This is sufficient to 
account for the fall in price, apart from the fact that in- 
ferior wood affects the quotations. 

The fall in the prices of iron and steel, and all materials 
entering into the manufacture of railroad cars, together 
with improvements in the tools and process of manufact- 
ure, will, in the United States, account for any decline 
in the price of cars. The increase of strength, moreover, 
makes a great difference in the weight to be carried, so 
that the superiority of the new cars has caused a depreda- 
tion in the value of the old ones.* 

The marked progress of improvements is also seen in 
the making of boots and shoes. In 1870, the operative 
was also a skilled shoemaker : now, he is known only as 
an edge-trinmier, an edge-setter, or a laster, because ma- 
chinery has been introduced which performs a special part 
of the manufacture. One machine trims the sole, another 
the heel, another polishes the shoe ; another, a beating-out 
machine, disposes of a whole row of shoes instead of one, 
as in former days. The button-holes are now worked by 
a machine which enables one operative to make five thou- 
sand in a day. In the McKay sewing-machine, on which 
four hundred pairs were sewed in a day, a small arm made 
two movements to throw one loop of thread over the 
needle ; but, when it occurred to the inventors to cause 
the arm to throw one loop at each movement, the opera- 
tive was enabled to sew eight hundred to one thousand 
pairs in a day.f Such changes are constantly going on, 
and it is little marvel that shoes are better made and lower 
in price. 

* I am indebted for information to Professor Arthur T. Hadley and to 
Mr. M. N. Forney, Secretary of the Master Car-bnilders^ Association, New 
York. 

tThe Goodyear McKay welt machine sews the welt on to the npper 
leather, and then sews the outer sole on to the welt, giving practioaUy the 
adrantages of hand-sewed work at a less price. 



GOLD AND PRICES SINCE 187S 337 

The fall of prices shown by Mr. Goschen can thus, with- 
out a question, be explained by causes other than the 
scarcity of gold. The course of progress, moreover, has 
gone farther and in more directions than I have space 
to describe * here. Suffice it to conclude with the facts 
in regard to the lowering of charges for transportation, 
which affect the prices of a great range of commodities. 
The average rates of freight for wheat from Chicago to 
New York f have fallen to less than 40 per cent, of the 
rates of 1878, whether we refer to transit by rail or canal. 
The charges for ocean transportation have fallen quite as 
much.f One of the mechanical triumphs of recent years 
has been the transformation of the old steamship into the 
new,§ which, taken in connection with the improved grain 
elevators and various expedients for receiving and dis- 
charging cargoes, has warranted the statement that a 
single sailor to-day transports two times as much as he 
did in 1870, three times as much as in 1860, and four 
times as much as in 1850. The fall in the rates of freight 

*A8 illustrations, we may point to the character of the improTements 
introduced in the making: of glass (which led to the labor riots at Charleroi in 
Belgium). One new Siemens ** tank furnace " does the work of eight old coal 
furnaces, while it requires only four men instead of twenty-eight. Common 
window glass has consequently fallen in price one-half. (See Fowler, Appreci^ 
ation of Gold^ p. 39.) Again, steel nuls can now be made at a less price than 
iron rails were made a few years ago, owing to well-known inventions. StiU, 
again, in the cotton mills, spindles which revolved four thousand times in a 
minute about 1873 now revolve ten thousand times in a minute. 

In connection with the great increase of supplies, see a suggrestive investi- 
gation by Mr. Luke Hansard, in the Report qf the Royal Commission on the 
Depression of Trade^ Appendix, pp. 405-414. 

t United States Bureau of Statistics, January, 1885. 

t See Contemporary Review, April, 1885, p. 545, where Fowler gives the 
charges from Calcutta on jute, wheat, linseed, and rape-seed, from 1881 to 
1884. See, also, Leroy-Beaulieu, ibid,, p. 401 ; Fowler, Appreciation qf Oold, 
pp. 45, 71 ; TThe Public, December 22, 1881. 

§ The improved ship, being a better and cheaper carrsring instrument, is 
itself the cause of the depreciation in value of older ships. In fact, this is the 
natural result of improvements. This depreciation of capitalized property, 
owing to improvements, is Mr. Frewen^s real difficulty, and is not explained by 
the scarcity of gold. 



388 qUABTEBLT JOURNAL OF ECONOMICS 

from Calcutta to London would alone account for the 
fall in price of several articles in Mr. Goschen's list. The 
tolls and pilotage on the Suez Canal * have fallen about 
one-third since 1873. 

The steady extension of the electric telegraph, together 
with changes in methods of doing business, help to lower 
the cost of production of many commodities. The means 
of instant communication with agents and correspondents 
in opposite parts of the world wholly obviates the carry- 
ing of large stocks of goods, and economizes the use of 
capital like a labor-saving machine. The whole world is 
thus opened to any dealer, and the middle-man is less 
used than formerly. Producers are brought nearer to 
consumers. 

Of the fall of prices in his table, Mr. Goschen says, 
" I am bound to say it appears to me that these figures 
reveal an extraordinary state of things " ; and he thinks 
it is due to the scarcity of gold. It has been shown con 
dusively, however, that, in every case investigated, a 
cause peculiar to the commodity has been found, without 
the need of referring to a general cause connected with 
gold. The opening of better lands to cultivation, the 
discovery of richer mineral deposits, the perfection and 
cheapening of transportation by which all these distant 
resources have become easily available, the increased mo- 
bility of labor and capital in finding out these new 
resources, the steady and extraordinary development of 
mechanical and chemical improvements in a great number 
of industries, — these are some of the main causes f which 
have affected the prices of a variety of commodities since 
1873. 

Laveleye, however, remarks J that improvements made 

* Leroy-BeaalieQ, ibid,^ p. 400. 

t CooroeUe-Seiietiil (Journal dea £conomistes^ Aagvat, 1886, p. 163) finds 
that the oompletioii of a period within which prodnotiTe railways can be bnilt 
has had an important influence in lowering prices since 1883. 

I Contemporary Review, May, 1886, p. 621. 



GOLD AND PRICES SINCE 1873 839 

even greater progress in the years 1860-70 than they have 
sinee then ; but that prices in the former period rose from 
18 to 20 per cent. Why, then, he urges, can the same 
cause have produced an opposite effect since 1878 ? To 
this, it must be said. If improvements multiplied before 
1878, and yet the prices of the commodities affected did 
not fall, the expected result must have been masked or 
counteracted by other influences. Surely, no one will con- 
tend for a moment that improved processes in particular 
industries will not lower the value of commodities rela- 
tively to gold, if gold has remained unchanged in its con- 
ditions of production. This would lead one to suppose 
that the prices of many articles before 1878 must have 
shown a fall, had it not been for the vast extension of 
speculation and overtrading and the influences of the new 
gold. But, now that the inflation and abnormal condi- 
tions of the previous period have been left behind, the 
effect of improvements has become more clearly apparent. 
In fact, when one considers that, with all the unparalleled 
development of cheapening processes since 1850 in al- 
most every industry which ministers to human wants, 
prices are no lower or, by the Hamburg figures, even 
10 per cent, above the level of prices in 1847-60, one is 
penetrated by the conviction that prices are still buoyed 
up by the high tide of an abundant gold supply. Else 
why should prices not be much lower than in 1860 ? " If, 
under such circumstances," says Cairnes,* "prices did 

* ** A rise in the price of oommoditieB, if general, implies oommonly a fall 
in the Talne of money ; but, according to the ordinary nee of language, alike 
by economists and in common speech, money woold, I i^pprehend, in certain 
cirenmstances, be said to hare fallen in Talae, even though the prices of large 
rlssses of commodities remained unaffected. For example, supposing im- 
prorements to hare been effected in some branch of production, resulting in 
a diminished cost of the commodity, the yalue of money remaining the same, 
prices would fall. If, under such circumstances, prices did not fall, that 
could only be because money had not remained the same, but had fallen in 
Taloe. Tlie continuance of prices unaltered would, therefore, under such oir~ 
, amount to proof of a fall in the yalue of gold. Now, when, in 



840 QUABTEBLT JOURNAL OF ECONOMICS 

not fall, that could only be because money had not re- 
mained the same, but had fallen in value.** Or it would 
be more correct to say that the cost of producing money 
had faUen ; for, if prices are now nearly the same as in 
1850, in reality the cost of production of both commod- 
ities and money has fallen, leaving them relatively to each 
other in very much the same position as in the beginning. 
When we once fully apprehend the influences of the 
progress of society on prices, we cannot admit that a 
fall of prices is connected in any necessary way with a 
scarcity of gold. 

VI. 

The preceding discussion, however, does not account 
for a general fall in prices. If the fall of prices has been 
general, it might suggest a single cause affecting all com- 
modities, such as the scarcity of the medium by which 
goods are exchanged. In fact, it seems to be quite neces- 
sary to a theory which explains the fall in prices by the 
scarcity of gold that the fall should be universal. And 
this is so stated. ^^The most disastrous characteristic," 
remarks Mr. Giffen,* "of the recent fall of prices has 
been the deicent dU round to a lower range than that 
of which there had been any previous experience." In 
the case of English exports and imports, the reader will 
find in Appendix V. a large collection of commodities 
which have actually risen in price since 1878, although 
that was a year of abnormally high prices. Mr. Pal- 

eonneotion with this oonsideratioii, we take aooonnt of the fact that orer the 
greater portion of the field of British industry improTement is constantly tak- 
ing place, it is obyions that the mere moTements of prices here, taken without 
reference to the conditions of production, are no sure criterion of changes in 
the value of gold/' Essays, p. 106. 

* Contemporary Review, June, 1885, p. 809. This is the ground taken by 
Laveleye, Contemporary Review, May, 1886, p. 621. Frewen {Nineteenth Cen- 
tury, October, 1885, p. 601) says : " Prices have all fallen more than twenty per 
cent. . . . Prices all round are falling lower and lower still, because that oiiou- 
lating medium which measures values has diminished." 



GOLD AND PRICES SINCE 1S7S 



341 



grave* points out a rise in price in 1886, as compared 
with 1881, of six of the articles used in the Economist 
table. Moreover, in the same list, comparing the period 
before 1875 with that since 1880, sugar, tea, tobacco, 
butcher's meat, raw silk, and leather have been at times 
higher in the latter than in the former period. 

The Hamburg tables also give additional evidence that 
prices are not all moving in the same direction. I have 
collected t twenty-one articles, out of the one hundred 
quoted at Hamburg, which show an upward tendency, 
by comparing the average prices of 1881-85 with those 
of 1871-75. The average of the numbers representing 
the prices of these twenty-one articles in the period 1871- 
75 was 164.2, and in 1881-85 183.8. In the same lists 
there can be found at least twenty-one articles J which 
have shown a decided tendency to fall in price. The 
remaining articles do not show a marked movement in 
either direction. Forsell § makes an interesting analysis 
of the whole one hundred into two groups, classifying 
those which show a tendency to rise and those which 
show a tendency to fall. In the first class he includes 
fifty-one articles, and in the second forty-nine articles, 
with the following results in averages: — 





lWI-00. 


1851-00. 


1881-70. 


1871-76. 


1876-80. 


1881-86. 


I. 


100 


126.8 


180.3 


147.1 


148.7 


146.4 


II. 


100 


109.7 


114.6 


121.7 


103.7 


96.7 



* Report qf the Royal CommUsion^ 1886, Appendix, p. 330. The artiolee are 
Jamaica mm, potatoee, flax, hemp, ashes, and tin (although tin is quoted by 
Mr. Gk)Sohen as showing a great decline in 1883). 



t 1871-75. 1881-86. 

Malt, 140.7 148.6 

Buckwheat, .... 131.7 135.6 

Hops, 889.4 365.8 

Veal, 168.1 183.9 

Mutton, 136.4 168.1 

Pork, 196.7 126.9 

Butter, 188.3 191.6 

Bristles. 20t9 226.9 

Buflslo boms, . . . 184.9 286.9 

Herring 140.8 166.8 

Driedfish, 168.8 184.1 

t Wheat, flour, rape-seed oil, linseed oil, oUto oil, palm oil, allspice, rice, 
sago, cochineal, logwood, quicksilver, salt, chalk, nlk, wool, potash, pearl- 
ash, soda, stearins candles, and wax. 

§ The Appreciation qf Ookl^ etc., p. 22. 



18n-76. 1881-86. 

Almonds. 111.1 127 6 

Wine, 221.9 2841 

Champagne, .... 121.2 1216 

Cocoa, 166.8 280.1 

Pepper, 229.7 283.8 

Auspice, 60.4 72.1 

Rum, 181.8 199.1 

iTory 185.0 194.8 

Flax, 128.1 128.2 

Gum elastic 141.6 157.9 



342 QUABTEBLT JOURNAL OF ECONOMICS 

Whether to draw inferences as to a scarcity of gold 
from forty-nine articles, or to infer that gold was abun- 
dant, according to the prices of fifty-one articles, is an 
awkward dilemma for those who think that prices give 
direct evidence as to the quantity of money. As Forsell 
remarks, the theory of a scarcity of gold is incompatible 
with the rise * in price of so many commodities. 

The purchasing power of gold, moreover, has been 
indicated in other ways, such as the higher prices paid 
for services, domestic servants, rents for houses, and for 
a vast number of things which, in their nature, cannot 
be included in price-lists, but which absorb a large part 
of every one's expenditure. 

VII. 

From the foregoing statements, it must be evident that 
the connection between prices and the quantity of gold is 
not so simple as some would have us suppose. But Mr. 
Groschen and his followers see reasons, in the direct and 
visible demands for gold, since silver was demonetized by 
Germany, to believe that gold f must be scarce enough to 
cause a general decline in prices. 

Gold to the amount of nearly £200,000,000 hu been raqniied for 
supplying Germany, the United States, and Italy with new gold 

*Mr. GifPen {Journal qf Statistical Society, March, 1879, p. 30^ nfen to 
the rise in price of teztilea and metals (and their nuurafaotorea) in 1861-66, their 
fall in 186&-^, their rise again in 1868-73, and their faU agun in 187^-79; and 
yet he cannot claim that there was any such corresponding changes in the 
quantity of gold in the world. Such fluotoations drove Mnlhall {Omtemporary 
BevieWj August, 1885) to the extreme of asserting the ahsenoe of any connec- 
tion whatever between prices and the quantity of gold. See, also, the inegn- 
larity of movement in the prices in Boomers table, Journal qf Statistical Society^ 
ibid,, pp. 411, 412. 

t Journal qf Institute of Bankers, May, 1883, p. 302. Giffen {Contemporary 
Beview, June, 1885, p. 815) computes the demand in the previous thirteen 
years of Germany at £80,000,000, of the United States at £82,000,000 (£34,- 
000,000 for imports less exports and £48,000,000 for home production), and of 
Italy at £20,000,000. 



GOLD AND PRICES SINCE 1873 343 

currencids.* This extraordinary demand fell on a diminished snpply. 
The annual prodnction of gold during the first five years after the 
discoveries of 1851 averaged nearly £30,000,000. It now amounts 
to less than £20,000,000. The new demand has been equal to the 
total supply of ten years. At the same time, we have to reckon with 
the normal demand for arts and manufactures,! while more gold has 
also been required to meet the wants of an increasing population 
and an increased balance of transactions in all gold-using countries. 

No evidence is before us to prove that a fresh development of 
banking expedients has to such an extent further economized the use 
of gold as to neutralize this normal rate of increase. On the con- 
trary, it is believed that, in England alone, the gold circulation has 
grown by £20,000,000 in ten years. 

Now, if the existing stock of gold in the world, in- 
creased as it has been since 1850, has not been capable of 
meeting the demands specified by Mr. Goschen, in what 
way would the effects of a scarcity manifest themselves ? 
If the insufficient quantity of gold has lowered prices, the 
process must have shown itself at some point in the ma- 
chinery by which commodities are exchanged. Fortu- 

*Layeleye (Contemporary Review, May, 1886, p. 625) sees in the coinage by 
Tarions ooontries sinoe 1873 a cause foralaim. The coinage of £220,000,000 
since that year he states to be equal to the production of ten yeais. It is 
impossible, however, to judge of the demand for gold by the amounts coined, 
because there are received at the mints foreign and domestic coins, which 
should not be counted twice; and old plate is also brought to be coined. 
Mulhall probably overstates the case when he says {Contemporary Review^ 
August, 1885) the annual average coinage of the world, 1870-84, wac 
£14,000,000, of which one-half came from recoinage of old coins. One-fifth ol 
the United States gold coinage in 1885 was from foreign coins and jeweUers^ 
bas, plate, etc., to the amount of about $10,000,000. At least, the coinage 
since 1873 is not a demand additional to that referred to by Mr. Qoschen, 
But, when Laveleye {ibid,, pp. 626, 627) refers to the falling off in the coinage 
of gold and silver since 1879 in England and France as evidence of a scarcity 
of gold, he forgets that this is, on the very surface, a reason for believing 
that the coinage is already so plentiful that no more is caUed for in the8< 
countries. 

tSoetbeer {Materialien, p. 38) places the annual consumption of gold is 
the arts at 90,000 kilograms, or nearly $60,000,000, and of silver at 515,000 kila 
grams, or about $21,000,000. An abundance of gold, however, will not affeoi 
the demand for plate, etc., by lowering the price of such articles ; for the price 
in gold would not change. 



344 QUABTEBLT JOURNAL OF ECONOMICS 

nately, Mr. Giffen * gives an explanation as to how this 
scarcity of gold has made itself felt : — 

A sadden praflsnre on the siook of the precious meUls at a giren 
period tends to distorb the monej markets of the countries using 
them, makes money dear, or creates a steady apprehension that it 
may at any moment beoome dear, and so, by weakening the specu- 
lation in commodities and making it really difficult far merchants 
and traders to hold the stocks they would otherwise hold, contracts 
business and assists a fall in prices. 

And, later,t he asserts that 

The rate of discount and the interest of money do not depend on 
the scarcity or abundance of ** money,** using the term in its strict 
sense, but on the scarcity or abundance of capital relatiye to the 
demands of borrowers. 

As a consequence, Mr. Giffen, in looking over the years 
since 1871, has been struck with the succession of strin- 
gencies in the money market directiy traceable to the 
difficulty of getting gold. Now, curiously enough, the 
period before 1873 was more remarkable for these dis- 
turbances than was the succeeding period. From 1855 to 
1873, the rate at the Bank of England rose beyond 6 
per cent, eleven times, and twice to 10 per cent. ; at the 
Bank of France, for the same years, the rate rose above 
5 per cent, ten times, and once to 9 per cent. ; at the 
Bank of Germany, it rose six times beyond 6 per cent., 
and once to 9 per cent. There must have been great 
difficulty in getting gold before 1873, if we are to judge 
from the frequency and intensity of the disturbances in 
the money market. But there is no corresponding evi- 
dence as to a scarcity of gold to be drawn from such dis- 

•JounuU qf Statistical Society , June, 1879, p. 49. He olainis, alao {ibid,, 
p. 445), thftt, after a fail in prices due to a scarcity of gold, there is ao apparent 
snperabnndanoe of gold, due to the lower range of prices. Or, as Layeleye 
puts it, **the more rare it [gold] becomes, the more it li^iparently exceeds the 
demand" {Contemporary Review, May, 1886, p. 631). 

t Contemporary Review, Jvme, 1885, p. 816. 



QOLB AND FEICES SINCE 1^3 



345 



Itovtfe 



» 



ttubances since 1873-* In fact, in the very machinery of 
borrowing and lending, where any such change might 
show itself, there 'm no eyidence whatever of a scarcity of 
gold. 

In order to test this question thoroughly, I have com- 
piled t the following table, which shows the total note cir- 
culation and the amount and character of the specie 
reserves in all the principal banks of Europe and the 
United States (000 omitted) : — 



Banki or the Ut^lted 

Kingdom, , , ^ ^ 

Bank of I'^sinccj . . , 

Bi^nk8 of Italy* . . . 

NaUoiial B^nk of Bel- 

ginm. ...... 

Bank ut th«^ Netber- 

Bank of AuBtii^Huii' 

KMT^ 

IiDp«nAl State Bank of 
Sawlat 

Bonk of Swe-i 



iDperial 



Bonk of Korwaj, « ^ 
National Bank of Dod< 

markp ...... 

KaUoual Baiiks of the 

0nltcc! Btntes, , . . 



l^TO-1874. 



KftierreB. 



0^l± 



Total, 



1872] 
1ST4] 

isosj 

ItTO] 
[1970] 
[1871 J 
{187U 
[ISTl] 

[ibn] 

[IS73]. 

Jim] 



fllS3,fi35 
4I,3S0 

im,ao<j 

1B^«7 

2,100 
16,651 
BO31 

1J49 

3,§01 
1S,900 



Silver, 



HTT.flT'l 



tiDe,so(i 

14,230 
{Sdp320 

4,775 

1,JS35 
9MQ 



I^OW 



Total 

otrcn- 
latloa. 



1198,540 
ao,A80 
274»lO0 

119^000 

4303S6 
7,337 

1«,877 



tlffiS^ilK 



lasfiy 



R«««iT«i. 



Gold, 31lT«r. 



SHi^aoo 

231,483 «£17,087 



13,9D0' 

^»903 

1O3,£0T 

3,436 
7460 

11,866 

IMAOO l 

t839, 140! 1^32^1 



SpMO 

38,366 

4S,e40 

076 

777 

T,9CK> 



TO^ 



Olron- 



|] 80,860 
38,115 
5fi04IO 
li0,6» 

TS|400 

7e,97B 

139,3111 

4^i860 

0339 
U,28f7 

iSi!^ 

27fl,CS0O 



$3,01S,B«I 



From these figures, it will be seen that the reserves 
in the banks of the civilized world show a very remark- 



* At tln^ Bank of EnglniidT fliripe 1873» tlte rate has neve J' been hi|rber tli»n 
fi per (^titlt» oud for only niDety-dbr days in aU^ divided btitweou, foiir cx:eotsioiti 
(in 1874, 1875» 1878, and 1H82), At the Bank of Fratotet io th& eame time, the 
t^to haa neyer men hijg:tieT tlian 5 por GHnt.■^ aJid for one hundred »od ttinety 
d»ya, divided between thr^ oeeaftJ(mi» (In 1H74, IBS], &ad 1882). At the B«uik 
of Gsnmuiyi aluo^ the rnte haa never riaen lugher than per c:ent.f Mid for one 
hundr^ aad tiiirty-«even day^^ divided botwtHiu four ocL-oaions (In 187-Jf 1875, 
187<>, and 188*i), See Report of Moyid CQmmission. on I^tprtmon of Trodt^ 

Appendix., pp. 37CKJ73. 

T Prom fibres given by Soetbeer^ Maifriiditn^, ete», pp* 58-70. For FWnoe, 

*ee ^aiUiin de StalMque Vomparit^ January, ltf87, pp, (i2, KJ, 



346 QUABTEBLT JOURNAL OF ECONOMICS 

able increase in gold. Although the total note circula- 
tion was increased 29 per cent., the gold in the reservea 
was increased 75 per cent., while the silver was also 
increased 25 {>er cent. In 1870-74, the gold reserves 
amounted to 28 per cent, of the total note circulation, 
and constituted 64 per cent, of all the specie reserves. 
In 1885, the gold bore a larger ratio to a larger issue 
of paper, or 41 per cent, of the total note circulation; 
and, in spite of unusual accumulations of silver (in the 
Bank of France, for example), the gold formed 71 per 
cent of the specie reserves. This is a very significant 
showing. What it means, without a shadow of doubt, is 
that the supply of gold is so abundant that the character 
and safety of the note circulation have been improved in 
a signal manner. In 1871-74 there was $1 of gold for 
every $3.60 of paper circulation.* In 1885 there was 
$1 of gold for every $2.40. 

There are, moreover, strong and substantial reasons for 
believing, on independent grounds, that gold is abundant 
instead of scarce. When we compare the total produc- 
tion since 1850 with that since 1492, the result is very 
striking, and cannot be too strongly emphasized: — 





Gold. 


surer. 


1498-1860, 


$8,814,660,000 


$7,368,460,000 


USl-1886, 


4,462,626,000 


2,890,476,000 



In the last thirty-five years, one and one-third times as 
much gold has been produced as in the three hundred and 
fifty-eight yearsf preceding 1850, while only one-third 

* In the face of these facts, Frewen^s statement (t6u/., p. 597) seems a Httle 
wide of the mark : ** Not only does the note oorrency diminish as the ^d rep- 
resented by such currency diminishes, bnt, ... as grold becomes s oa r oer and 
prices tend to fall, so also does the entire system of credit continue to con- 
tract.^' Cemuschl, the very apostle of bimetallism, himself admits that *''' the 
fall in prices which is complained of is not due to what has been called a 
scarcity of gold.— a scarcity which is purely imaginary.'* London Economitt^ 
AprU 24. 1886. 

t The amount in existence in 1848 is only a matter of conjecture. The 
estimates vary from $1,000,000,000 to $3,150,000,000. 



GOLD AND PRICES SINCE 1873 347 

as much silver has been produced in the same time. And 
yet we hear a great deal of the phenomenal yield of the 
silver mines of late years. What has become of this vast 
quantity of gold ? We are fairly obliged to explain why 
gold has not fallen in value. It certainly would have 
fallen, had not its use been extended; and, out of the 
extraordinary addition to the world's supply, the demands 
of France, India, Germany, Italy, and the United States 
have been easily met. The countries of the world are 
yet saturated with the new gold.* Mr. Goschen speaks 
of an addition to England's gold circulation in ten years 
of $100,000,000 ; while, strangely enough, Mr. Giffen is 
alarmed because there was no coinage at all in 1881-82 ! 
Laveleye, also, is troubled because the coinage in France 
is diminishing I 

But we hear it said constantly that the annual produc- 
tion of gold is falling off, and that its value must rise. 
Now, this is what Mr. S. Dana Hortonf calls the "sempi- 
ternal object of erroneous reasoning." The value of gold 
is affected by the total existing supply, which is very 
large relatively to the annual supply. And yet it is true 
that the annual production has fallen off from its highest 
point, about 1863. Before 1840, the annual production 
of gold amounted to about $14,000,000 : it rose as high 
as $167,000,000; but in 1885 it was about $100,000,000. 
A millionnaire, however, does not feel poor because his 
annual increase of wealth is a few thousands less than it 
was at its greatest: his past accumulations are still his, 
and his yearly income is yet large. The yield from the 

* Soetbeer (Materialien^ p. 70) giyes the foUowing sumnuuy of the amount 

of gold in the civilized countries by yean (in millions of dollan) : — 

im. 1878. 1879. 1880. 1881. 1883. 1883. 1884. 1885. 
722 712 875 947 976 1|017 1,150 1,170 1,260 

"t Quarterly Journal qf Economics, October, 1885, p. 58. Layeleye and 
IKsiaeli are addicted to the ** sempiternal fallacy.*' (See Contemporary 
Beview, May, 1886, p. 623.) Cemnschi, however, remarks, ^*The power of 
the gramme of gold is proportionate to the whole of the gold, . . . not to the 
importance of the annual production.*' Anatomy qf Money, p. 11. 



848 QUABTEBLT JOURNAL OF ECONOMICS 

mines to-day is enormous compared with any period pre- 
vious to 1850, and this has been kept up for thirty-fiye 
years. The longer this continues, the less important will 
be the variations in the annual supply.* 

VIII. 

Even though the gold production from 1860 to 1886 
has been great enough to meet very heavy demands, yet 
it may be asked how far have the means for economizing 
money developed of late. Mr. Giffen believes no evidence 
exists as to an extension of credit devices since 1873, 
that England and the United States were already fully 
"banked" before this period, and that the clearing-system 
on the continent shows no progress. The increase in pop- 
ulation and commodities, he urges, has not only not been 
compensated for by any economizing expedients, but the 
increased demand for gold has fallen on a diminishing 
supply. 

To examine, first, whether the issue of notes has saved 
the use of gold in the principal countries of the world 
since 1873, it will be necessary to compare the amounts 
of uncovered paper, not the amounts of the total circula- 
tion in the periods taken. To the extent, of course, to 
which the covered circulation has increased, no extension 
of credit has taken place. For this purpose, I have pre- 
pared a table showing the amounts of the total circula- 

* The annnal average production of gold and silyer since 1850 is as fcdlows r 



Periods. Gold. 


surer. 


1861-66 $139,077,000 


$40,096,70& 


1866-60 140,729.000 


41,m,S60 


1861-66 129,061,000 


48,827,00a 


1866-70 136,035,000 


69,924/WO 


1871-76 121,302.000 


86,162,00a 


1876-80 120,261,000 


96/S16,0OO 


1881-86 104,026,000 


107,190,000> 


field for the single years since 1880 is as foUows : 


— 


Gold. 


SilTer. 


1881 $110,810,000 


$98,418,009 


1882 103,664,000 


106,916,00a 


1883 100,822,000 


108,682,000 


1884 101,940,000 


110,890.000 



Soetbeer, McUericdien^ p. 1. 



GOLD AND PRICES SINCE 187S 



349 



tion, and the amomits of the total circulation less the 
specie reserves, in the principal countries for the years 
1870-74 and for 1885 COOO omitted) : — 



Countries. 



Great Britain,* . . 
France,! . . . . 

Oermanj^D . . . . 
Rn88ia,1i . . . . 
United States*** . 

Total, 



1870-74. 



Uncorered by 
specie. 



[1872] 
1869^ 
1870 
187^ 

'1871' 
187* 
i87i; 



•44,710 
89,739 
168,000 
309,678 
136,760 



606,400 



$1,442,938 



Total oir- 
cnlation. 



$216,939 



180,000 
263,616 
812,649 
476,857 
606^00 



$2,276330 



1885. 



Uncovered 
by specie. 



$45,644 
186,041 
170,000 
188,646 
124,600 
626,000 
172,000 



$1,360,831 



Total cir- 
culation. 



$211,139 
683,610 
285,200 
263,194 
299,906 
627,000 
814,800 



$3,064,348 



From these figures, it will be seen that in 1886, as com- 
pared with the years about 1878, the uncovered circula- 
tion decreased by $82,000,000, or 5 per cent. ; whUe the 
total circulation increased by $800,000,000, or 85 per cent. 
This indicates quite clearly the effects of the great 
addition to the world's stock of gold and silver since 

• Soetbeer, Materialien, p. 59, and Statistical Abstract, 1884. 

t The mean of the highest and the lowest circulation is given for 1869. 
See Bulletin de StcOistique Comparie^ iii., 21, and London Economist^ January 
23 and December 25, 1869. For 1885, see Soetbeer, ibid,, p. 73. 

X See Rdazione suUa Circolazione Cartacea^ made io the Italian Chamber of 
Deputies, March 15, 1875, Appendix, pp. 20, 41 ; and Haupt, L*Histmre MorU- 
taire de noire Temps, p. 274. 

§ See Soetbeer, ibid,, pp. 64, 74 ; and Miilinen, Finances de PAutriche, p. 163. 

11 For 1871, the uncovered circulation is griven by Soetbeer, ibid,, p. 74. 
Taking the total circulation of all the Qerman banks (given for 1871, p. 65), 
and supposing the Landespapiergeld to be the same in 1871 as in 1870, I get 
the total circulation for the year 1871 instead of 1870. 

tSee Bulletin de Statistigue Compart, ii., 161 ; Haupt, ibid,, p. 366; and 
Soetbeer, ibid,, pp. 66, 75. 

** For 1871, from the 674,000,000 of United States notes and National Bank 
notes there has been deducted $168,600,000 for notes held by the treasury and 
the banks. No notes could be presented for specie in 1871. For 1885, from 
$664,000,000 of United States notes and National Bank notes, $134,800,000 wan 
deducted for notes held by the treasury and the banks. The amount of specie 
which could be drawn on by holders of either kinds of notes, to the amount of 
$278,400,000 gold and $79,000,000 silver, was also deducted, to ascertain the 
nncovered note circulation. Cf. Finance Report, 1886, i., p. Ixxx. 



360 QUABTEBLY JOURNAL OF ECONOMICS 

1873. Specie to the amount of J800,000,000 has gone 
into circulation in the form of note issues, representing 
an equivalent amount of specie ; but gold has not been 
economized by the use of credit in the form of notes. 
While the total circulation of these countries has in- 
creased 85 per cent., the paper has been much better 
protected ; for in 1870-74 the specie was but 36 per cent 
of the total issues, and in 1885 the specie was 55 per cent, 
of the total issues. From this table, then, we see where 
the gold referred to by Mr. Goschen has gone. About 
1750,000,000 of specie, mostly gold, has gone into circu- 
lation since 1873, in the form of covered paper issues, 
in the United States and Italy alone. The paper cur- 
rency of every country except Russia has gained in 
security, together with a large increase in many of the 
countries. The gold supplies have not merely permitted 
an enlarged note circulation, but have furnished a much 
better protection to that increased issue. 

In regard to the use of checks and clearing-houses 
in economizing the use of money, Mr. Giffen is probably 
correct in saying that this system had attained its full 
growth in the United States and Great Britain before 
1878 ; but an important conclusion is to be drawn from 
this. Just to the extent to which the system may have 
been perfected is it one which expands with the expan- 
sion of business. In the same proportion that transactions 
increase, this means of economizing the use of money will 
(approximately) increase. The clearing-system, in fact, is 
one which grows with the work to be done.* Certainly, 

*How well this is recognized may be seen by the accepted custom of meas- 
uring the extent of business by the figures of the clearings. ^' The returns of 
the London Clearing-house," says Mr. Palgrave, ^* may be regarded as indi- 
cating approximately the value of the business of the country as indicated by 
price." Report qf Royal Commission^ Appendix, p. 330. In the United States, 
of all the receipts by the 1,966 national banks on one day in 1881, 95 per cent, 
were made up of forms of credit, exolnsive even of circulating notes ; while 
in New York City this percentage was 98.7. At all the banks, only .63 of 1 



GOLD AND PRICES SINCE 187S 861 

this is true of wholesale transactions ; while in retail trade 
the use of checks is steadily widening. An elastic sys- 
tem, so far as it is ready to perform exchanges in propor- 
tion to their increase, meets the need of more money the 
moment it appears. If there has been no increase in 
clearings under such conditions, it only shows that trans- 
actions have not increased, not that there is any less 
efficacy in the system. Where checks are in general use, 
other forms of credit are of less importance.* 

On the continent, the borrower at a bank will, as a rule, 
prefer notes instead of the right to draw on a deposit by 
checks. Yet, even at the Bank of France, 66 per cent, 
of the transactions in 1877-78 were effected without the 
use of notes and coin.f But, on the other hand, the 
Cfhambre de Compensation^ established in Paris in 1872- 
78 (including twelve of the large banks), with the help of 
the Bank of France, performed exchanges % the first year 
to the value of $320,000,000, which in 1883-84 had risen 
only as high as $843,000,000. Clearing-houses were also 
established in Austria and Italy in 1872, but they have 
made little gain. The exchanges at the Saldirungs-verein 
in Vienna (formed by the four old banks of the Saldosaal of 
1864, together vrith ten other large banks) were no greater 
in 1885 than in 1872, being at that time about $200,000,- 
000 a year. The clearings of the Stame di Compematione 

per cent, of grold was used ; and, in New York City» only .27 of 1 per cent, of 
gold was used. See Report of the Comptroller of the Currency^ 1881, p. 14. Cf. 
also Journal Statistical Societj/, June, 1865, ** Country Clearings." 

* The use of bills of exchange in Great Britain seems to be falling off, with 
an increased use of checks. Cf. Sauerbeck, Prices of Commodities, p. 8. 

t Cf. Journal qf Statistical Society, 1884, p. 4a3. If MulhaU's Dictionary qf 
Statistics can be trusted, the banking of the world since 1840 has increased 
elevenfold, — three times faster than commerce, and thirty times faster than 
population. Leroy-Beaulieu reports that "'checks have become eTer3rwhere 
a more common instrument of payment '' {Revue des Deux Mondes, May, 1886, 
p. 403). 

I The figures for the continent are taken from Rauchberg^s Die Entwick- 
dung des Clmring-verkehres, in the Bulletin de PInstitut International de Statif 
tique, i., p. 140, etc. 



862 QUABTEBLT JOURNAL OF ECONOMICS 

in the several cities of Italy show a gain from $129,000,- 
000 in 1883 to $848,000,000 in 1886, with some promise 
for the future. But, in Germany, a decisive advance was 
made in 1888, under the leadership of the Reichsbank, in 
the establishment of clearing-houses in Berlin, Hamburg, 
Frankfort, Bremen, Cologne, Leipzig, Stuttgart, Breslau, 
and Dresden. In the year 1884, the exchanges amounted 
to the large sum of $8,032,000,000. Although not so 
large as the $30,000,000,000 a year in New York or Lron- 
don, it is a very promising increase in the means of econo- 
mizing the use of specie on the continent. 

In the international trade, also, as Leroy-Beaulieu * sug- 
gests, it is not necessary that the precious metals should 
increase as rapidly as commerce expands. The ocean 
and land telegraph, the shortening of routes by canals, 
and the extraordinary improvements in the ocean steam- 
ships have resulted in economizing the shipments of gold 
between different countries. A few years ago, twelve or 
fifteen days were taken up in carrying gold from New 
York to London ; but now six days are sufficient. For- 
merly, gold was ninety days coming from Australia to 
England; while only thirty-five days are now required. 
In this way, gold being a less time in passing from person 
to person in international transactions, greater rapidity of 
circulation is insured, with all the effects of an increase 
in quantity.f The use of foreign bills of exchange is as 
great as ever between bankers in different countries; 

* Revue des Deux Mondes, May, 1886, p. 402. This is more or less oon- 
firmed by Bourne's table {Journal qf SuuMcal Society, 1879, p. 411). 

t Fowler {Appreciation qf Gold, pp. 12, 13) says of Enfirlish trade : ** The 
total of oar imports and exports from 1866 to 1875 was in round figures £6,000,- 
000,000, and the total of bullion and specie imported and exported was, in the 
same period, £530,000,000 ; but the total of our imports and exports from 1876 
to 1885 was £6,700,000,000, and this vast amount was moved vrith the lud of 
£403,000,000 of bullion and specie. If we take the gold alone, we used about 
£327,000,000 in the former decade agrainst £278,000,000 in the latter.'' If we 
can trust Mulhall, in 1861-70 the amount of the precious metals transported 
was 12 per cent, of the sea-borne commerce of the world, while in 1871-80 it 
was only 8 per cent. 



GOLD AND PRICES SINCE 187S 353 

while there is far greater activity of late in the trans- 
mission of securities which discharge international liabili- 
ties as well as in the extended use of international money- 
orders.* 

IX. 

To get more light on the question whether gold has 
risen relatively to all commodities from causes affecting 
gold itself, it would be profitable to examine into the 
movement of prices in India ; f but this will be deferred 
until it can be discussed more fully. 

It will be as well to close the present study by referring 
briefly to the argumenl of the English writers,| that a 
scarcity of gold has brought about a fall in rents, profits, 
and wages. It will be recalled at once, in regard to rents, 
that a marked characteristic of the period since 1873 has 
been the opening up of new and fertile lands, whose prod- 
ucts have been transported at a greatly dimimshed rate. 
But this in itself is a reason why lands in the older 
countries should be thrown out of cultivation, and why 
rents should be lowered. This phenomenon, then, can be 
accounted for on other grounds than the scarcity of gold. 

In attributing the fall in the rate of profits to the 
general fall of prices (due to a single cause, the scarcity 
of gold), these writers fall into an error which has been 

*Iii the oountries composiiifir the Postal Union in 1885, the iarae of inter- 
national money orders had risen to $60,000,000, and the iasne of domestio 
money orders to the surprising amount of $1,821,000,000. See 8tati$tique 
G4n6rale du Service Postal, Berne, 1886. In the United Sutes al<me domestio 
money orders have increased $80,000,000 since 1873. I am much indebted for 
information to Mr. C. F. Macdonald, of the Post-office Department. 

t These prices, so far as published, can be found in Barbour's Theory of 
BimetaUism ; in J. £. O'Conor's Report on Prices and Wages in India, 1886, 
GoTemment of India, Department of Finance and Commerce; and in the 
Report of the Royal Commission on Depression qf Tmde, Appendix, pp. 331-342, 
37^-382. 

I Frewen, ibid., p. S99 ; Giffen, Journal qf Statistical Society, 1879, p. 57, 
and Contemporary Review, June, 1885, p. 816; the writer in the EdifAvrgh 
Review, July, 1886, p. 39 ; and Sauerbeck, ibid,, p. 42. 



364 QUARTEBLT JOURNAL OF ECONOMICS 

already thoroughly exposed by Mr. Mill,* who pointed 
out that ''•the fall of price, which if confined to one 
commodity really does lower the profits of the producer, 
ceases to have that effect as soon as it extends to all com- 
modities." In some industries, however, owing to changes 
in relative demand and supply, intense competition has set 
in since 1878, and producers have necessarily submitted to 
lowered profits. But, in so far as prices have fallen in all 
industries alike, that cannot have been the cause of a gen- 
eral fall of profits. 

If, however, labor has not fallen in price, while other 
things have fallen, "what has really taken place," sajrs 
Mr. Mill, in the connection already quoted, " is a rise of 
wages; and it is that, and not the fall of prices, which 
has lowered the profits of capital." It is quite certain 
that there has been no fall of real wages since 1873, while 
there is good reason to suppose that they have risen.! In 
the United States, money wages may have fallen slightly 
in some industries ; but an allowance must be made for 
the depreciation of paper previous to 1879. American 
producers have been enabled to sell at lower prices, and 
yet pay relatively higher wages, only by a gain in effi- 
ciency. As a typical case, the accompanying facts are 
furnished me by a manufacturer from his own books : — 



December, 1867. 
" 1876. 

" 1886. 



ATerage wagef per day. 



•2.06 
1.71 
1.79 



Amount paid for a gtyen 
piece of work. 



fl.00 
.78* 



For Germany, Soetbeer gives a variety of evidence to 
show the rise of wages J since 1873. Money wages in 
Italy,§ which were indicated by the number 179 in 1878, 

* Principles qf Political Economy^ B. IV., chap, iv., §1. 

t See Report of Massachusetts Bureau of Labor StcUistics for 1884, and Report 
on the Statistics qf Wages, United States Census, 1880, vol. xx, 

t Materiaiien, pp. 88, 90, 91. 

§See Movimenio dei Prezzi di jilcuni Generi Alimentari dal 1862 al 1885 
(1886), issued by the Italian Department of Agricnltore, p. xxvii. 



GOLD AND PRICES SINCE 187S 355 

were in 1884 expressed by 222. But it is not necessary 
to cite further evidence on this point. The fact that 
wages have risen tends to confirm the belief that the 
fall of prices is due chiefly to the introduction of im- 
provements. 

X. 

In the study of this subject, we have been confironted 
at the outset with a fall of prices since 1873 which hap- 
pened to coincide with the demonetization of silver by 
Germany and the United States, and the beginning of a 
new epoch in the production of many commodities. To 
assume that because the fall of prices coincided with the 
demonetization of silver it was due to an appreciation of 
gold, without considering whether the coincident phenom- 
ena were traceable to entirely distinct causes, is to fall 
into the fallacy of post hoc propter hoc. The forces which 
fix the level of prices at any time, moreover, are far too 
complex to admit of the inference that, because prices 
have fallen seriously, gold has become scarce. On the 
other hand, all the phenomena presented to show the 
scarcity of gold are explicable on other grounds. 

But — what is of very grave importance — we must 
admit that great changes in prices may take place irre- 
spective of the scarcity or abundance of the precious 
metals. From this, it follows that, as a standard of pay- 
ment for contracts, neither gold nor silver, nor even gold 
and silver (if they should ever be firmly yoked together 
by international bimetallism), will change so as to corre- 
spond to the changes in prices brought about by a variety 
of causes independent of the quantity of the precious 
metals. Under such circumstances, the attention given 
to the question of a proper standard of deferred pay- 
ments can never be too careful. 

J. Laubencb Laughlin. 



NOTES AND MEMORANDA. 



The JRevue d^iJconomie Politique^ of which the first num- 
ber appeared in Paris in February, is the result of the estab- 
lishment in 1878 of chaii-s of political economy in the French 
faculties of law. A large number of the new professors, of 
various economic schools, but having strong professional sym- 
pathies and, no doubt, from training, some intellectual tenden- 
cies not altogether welcome among the veterans of the old 
society, have now established this review as an independent 
medium, the organ of no person or school, but to be open to 
all opinions, if treated in the scientific spirit and with comity 
towards others. To carry out this excellent programme, the 
JRevue has a board of four professors as editors, — Messrs. Gide 
of Montpellier, Jourdan of Aix, Villey of Caen, and Daguit of 
Bordeaux, — and a formidable list of co-laborers, including the 
familiar names of Cossa, Foumier de Flaix, Laveleye, Jules 
Simon, and Walras. The first number contains a "Chro* 
nique " for 1870-87, which bears some traces of the fermen* 
tation which has thus given the Journal dee J^anamistes a 
companion. 



Fbom the report presented January 19, 1887, by the Perma- 
nent Commission of the Italian government for the abolition 
of the forced currency, the following general statements are 
collected : — 

At the date of resumption in 1883, the notes in circulation 
for which the government was responsible amounted to 
940,000,000 francs. Of these, on the 80th of June, 1886, 
476,000,000 had been redeemed, so that the amount outstand- 
ing was a trifle short of 464,000,000. 

It is well known that provision was made for resumption by 
contracting a loan of 600,000,000, of which a large part was 



NOTES AND MEMORANDA 



357 



received by the treasury in gold. The commissioii give the 
following comparative statements to show the extent to which 
the provision of cash has been used [here given in millions 
and tenths] : — 



On hand. 


ApiillO,1888. 


June 80, 1886. 




Of the 
louu 


Of OTdi- 
nary re- 
sooroes. 


TbteL 


^ 


Of ordi. 
naiy re- 
sooieee. 


Total. 


€k)ldootii» 

SaTor coin, 

ffm^Ti ooin, 

ITiieanent md Irallion, . . 


S17.S 

7.5 

7W 

.0 


48.1 
1\A 
61.4 
6.7 


666.8 

19. 

1366 

6.7 


111.7 

.0 

ft.4 

.0 


84.1 
6.4 
S.8 

78.7* 


196A 
6.4 
1S.S 

76.7 




800. 


127.7 


7S7.7 


m.i 


170. 


291.1 



The redemptions for the last year were 57,500,000. 
The use of money and of paper in making payments of duties 
at the costom-honses has been as follows : — 





Gold. 


surer. 


State notes. 


1883. 84 numtlit. 


7.8 


12. 


107.6 


1884,^ 


14.6 


2L3 


189.1 


1886; 


8.7 


60.9 


19L4 


1886,6inonUi8, 


1.2 


8.8 


66.9 



27.3 



96. 



608.9 



During the same period, as might be expected, the imports 
and exports show an exchange of gold for silver by Italy on a 
moderate scale, silver showing a balance of imports of 69,600y- 
000, and gold a balance of exports of 60,900,000. 



A THIN quarto was issued last year, by the Register of the 
Treasury, entitled A Statement of the PxMic Debt of the 
United States from 1789 to 1885, and Receipts and Bqpendi- 
tures from 1855 to 1885. The receipts and expenditures are 
given by quarters, with the usual tabular classification; and 
the statement of debt is given by issues and redemptions, so 
as to show the balance outstanding of every description at the 
end of every year from 1789. Such a statement well made 
would be of great service ; but a little examination will show 

•Of this amonnt, 73.9 milUons are silTer. 



358 QUABTESLT JOURNAL OF ECONOMICS 

that the Register's publication will have to be used with 
extreme caution. The statements of the debt do not agree 
with those in the Finance Reports, the balances in the Treas- 
ury show frequent and important variations, and seven pages 
are taken up with an explanation of discrepancies between 
the finance reports and the receipts and expenditures as 
now stated. If figures from the new statement by General 
Rosecrans are used then, it is unsafe to bring them into line 
with figures from the Finance Reports, or the Statistical Ab- 
stract, or Elliott's report of 1845, or even the Register's report 
of 1885. 

Probably most of the changes are the result of merely 
formal operations of accounting, and, if so, tend to confusion, 
with no real compensation in utility. But some discrepancies 
appear to be of a different sort, — as the statement of the navy 
pension fund in the debt outstanding at $1,000,000 instead 
of the familiar $14,000,000, the entry of 1881 sixes, sold at a 
discount in the latter part of 1861, by stating the amount 
received instead of the par amount of the bonds, and the 
extraordinary omission of the Revolutionary debt, funded by 
Hamilton in sixes and threes. This total omission of a debt 
which at its height exceeded $60,000,000, and in the last year 
of its existence called for a final payment of over $13,000,000, 
makes the long and elaborate calculation of outstan<ling debt 
on pages 55 to 70 worthless, and discredits the remainder of 
the statement, and indeed of the volume. The matter is not 
made clearer by a note on page 98 explaining ^ large discre- 
pancies, year by year," between the new statement and that in 
the Register's report for 1885. 



Mb. Atkinson's pithy advice to the European nations, " Dis- 
arm or starve," given in his striking articles in the CerUurf/y 
receives a timely illustration from the simultaneous publica- 
tion, by M. Alfred Neymarck, on the public debts of Europe. 
A detailed review of the debts, one by one, shows an increase 
of about 40 milliards of francs since 1870, and a present nomi- 
nal capital of 117 milliards in all, with interest and sinking 



NOTES AND MEMORANDA 359 

fund payments of 5,343 millions annually. M. Neymarck*s 
conclusion is much like Mr. Atkinson's: — 

The finances of Europe are so inyolved that there is reason to fear 
that the governments may ask whether war, with all its terrible chances, 
is not preferable to the maintenance of a precarious and costly peace. 
If the military preparations and armaments of Europe do not result in 
war, they may well end, as Lord Stanley said twenty years ago, in the 
bankruptcy of the States. Or if such follies lead neither to war nor to 
ruin, then they assuredly point to industrial and economic revolution. 



Mushlbbecht's Stoats- und Hechtsvnssenschaftlichen JLUer- 
atur for 1886 gives a summary statement of the number of 
titles registered by the series, showing the remarkable activity 
of writers upon political science for twelve years past. The 
new publications registered are as follows : — 

1876-S6. 1S86. 

G«rman, including Anstrlan and Swiss, .... 21,404 1,687 

French, ** Belgian, 9,290 770 

English, ** American, 64W8 680 

UaSan, 3,670 407 

Dntch. 2,284 947 

ScandinaTian, 1,022 161 

Spanish, 864 89 

44,947 4,061 

Periodicals are not included among the French, English, 
Italian, and Spanish titles. If they were, it is estimated that 
the French and English titles would be increased by 1,000 
each, the Italian by 500, and the Spanish by 100. Of the 
twelve years, 1873 was least prolific, yielding 3,187 titles, and 
1884 the most, yielding 4,394. 



NOTE BY PROFESSOR MARSHALL. 
To the Editor of the Quarterly Journal ofEconomicB : 

Sm, — In spite of my rule not to engage in controversy, I 
must ask your leave to state briefly that the courteous attack 
made by Professor Laughlin in your last number, on the 
Theory of Value and Distribution contained in the Ecorhomics 
of Industry^ is founded on a misapprehension. 

He supposes that the aim of that theory is to substitute 



360 QUABTEBLT JOURNAL OF ECONOMICS 

expenses of production for cost of production as a regulator of 
Talne. But that b not the case. Mill used the phrase, '^ cost 
of production,'' in two senses, to represent sometimes the 
efforts and sacrifices required for producing a commodity, 
sometimes the money measures of these sacrifices. In the 
former use, he showed how cost of production tends, under 
certain circumstances, to regulate value. But, when he says 
that cost of production tends to equal value, he must use the 
phrase in the latter sense ; for an exchange value or a price 
cannot equal an effort, though it can equal the money measure 
of that effort. Finding that the double use of the phrase led 
to confusion, I proposed to use " expenses of production," in 
lieu of '^ cost of production," in the latter sense. (My reasons 
are given at some length in the FortniglUly Review for Aprils 
1876, where I originally suggested the phrase.) In doing 
this, I did not think I was saying anything that was substan- 
tially new, but simply writing out more clearly what Mill had 
meant. Assuming competition to be free, I regard cost of 
production, in the first use of the term, as determining the 
(normal) expenses of production, and these as determining 
(normal) value absolutely in those cases in which the cost, 
and therefore the expenses, of production are independent of 
the amount produced. In those cases in which the cost, and 
therefore the expenses, of production are liable to vary with 
the amount produced, and therefore to depend, in some meas- 
ure, indirectly on demand, I regard cost of production, 
through its influence on (normal) expenses of production, as 
acting, in conjunction with Demand, to determine the amount 
it is worth while to produce, and at the same time (normal) 
price. 

Mr. Laughlin says that, in the Economics of Industry^ 
" the subject of value is treated before that of distribution."' 
If he will look again, he will find it is not so. The object 
with which tlie book was written was, as stated in the preface 
to the second edition, " to show that there is a unity under- 
lying all the different parts of the theory of prices, wages, and 
profits. . . . This law of normal value has many varieties of 
detail, and takes many different forms. But, in every form, it 



NOTES AND MEMORANDA 361 

exhibits value as determined by certain relations of demand 
and supply, and cost of production as taking the chief place 
among the causes that determine supply." (See, also, Book 
n.. Chaps. YI. and XIII.) It was essential to this purpose to 
put the general theory of normal supply and demand before 
that of distribution, but both are included under the one head 
of value. The discussion of value is opened before that of 
distribution, but finished after it. The argument, therefore, 
does not, as Mr. Laughlin thinks, imply the circular reasoning 
of determining wages by expenses of production and expenses 
of production by wages. 

I cannot enter here into the discussion of the relation be- 
tween different grades. I can only remiEu*k that I consider 
Caimes's treatment of them to be neither as original nor as 
completely thought out as it appears to Mr. Laughlin. The 
question of compact industrial groups, of which the question 
of grades is a part, is itself but one side of a very large prob- 
lem on which I have much to say, but for which there was no 
room in the JBkanomics of Industry. (See, however, pp. 107, 
108, 131, 132, and 206-13.) 

No doubt there is much that is faulty in exposition in the 
.Bcanomics of Industry. I am at present engaged on a larger 
book, in which I am allowing myself more room, and hope I 
may make my meaning clearer. In conclusion, I will ask 
Mr. Laughlin to remember that the use of the phrase 
"expenses of production," in lieu of "cost of production," is 
to be regarded as offering, not a new theory, but merely a 
verbal amendment. The main object which my wife and I 
had in writing the Economics of Industry was, I repeat, to 
show that there is a unity underlying all the different parts of 
the theory of prices, wages, and profits. I am, sir, 

Yours truly, 

Alfred Marshall. 

CJUCBBlDOSy BXOLAHD, Feb. 35, 1887. 



My debt to Mr. Marshall's book is such that I must regret any 
fault in the exposition as much aa he, if by it I have been led 
into any misapprehensions. I still confess, however, to the 



362 QUABTEBLT JOUBNAL OF ECONOMICS 

difficulties expressed in my discussion of his book (which I 
hope will not be taken as an '^ attack"). I do not yet under- 
stand how sacrifices determine the (normal) expenses of pro- 
duction (although they may be in proportion to them) ; and I 
must leave to the reader to decide whether the theory of nor- 
mal value is not laid down in Book 11., before one can know 
what regulates the rewards for the sacrifices (or expenses of 
production). But, sharing Mr. Marshall's dislike for contro- 
versy, I shall leave the subject here. 

J. Laubbnob Lauohldt. 



GENERAL OVERPRODUCTION. 

No principle of political economy is more generally accepted 
by the recognized authorities than that of the impossibility of 
a general overproduction; in other words, the impossibility 
of an excess of production, not beyond the amount that 
would be required to meet the desires of mankind, if prod- 
ucts were to be dbtributed gratuitously, but beyond the 
amount required to meet all demands that are backed by the 
ability and the willingness to pay for the things demanded. 
This doctrine — that it is impossible that production should, 
on the whole, exceed the demands of the market — was de- 
clared by John Stuart Mill to be " fundamental." " Any dif- 
ference of opinion on it,** he asserted, ^^ involves radically 
different conceptions of political economy, especially in its 
practical aspect. On the one view, we have only to consider 
how a sufficient production may be combined with the best 
possible distribution ; but, on the other, there is a third thing 
to be considered, — how a market can be created for produce, 
or how production can be limited to the capabilities of the 
market." 

It has happened that, in recent years, this principle, so gen- 
erally accepted by the learned, has apparently been as gener- 
ally contradicted by the every-day experience of practical 
men. During the last twelve or fifteen years, business men 
have, almost without exception, complained that, so far at 
least as the particular business of each was concerned, there 



NOTES AND MEMOBANDA 363 

has been an actual overprodaction ; and, unless a majority of 
these men have been mistaken as to the proportion of demand 
to production in their own specialties, general overproduc- 
tion must have been, in spite of the theories of the economists, 
an actual existing fact. In this conflict of theory with appar- 
ent fact, it becomes important carefully to test the theory, in 
order to see whether it is based on sound reasoning. 

The argument on which this theory is based has been very 
clearly and ingeniously stated by John Stuart Mill in his 
Principles of Political Economy^ and is in substance this: 
No man produces anything, unless he expects either to con- 
sume it himself or to exchange it for something else which he 
expects to consume ; in other words, production never exists, 
unless an equivalent demand for consumption exists at the 
same time, and therefore production can never exceed in 
amount that demand for consumption, can never be developed 
into general overproduction. According to Mill, those who 
assert the possibility of general overproduction are involved 
in the absurdity of assuming that people will go on producing 
articles which they do not expect to use themselves or to 
exchange for other articles which they do expect to use ; and 
their error lies — to quote his own words — "in not perceiv- 
ing that, though all who have an equivalent to give might be 
fuUy provided with every consumable article which they de- 
sire, the fact that they go on adding to the production proves 
that this is not the case.'' 

As applied to a simple state of society, where products are 
created without much division of labor and without much aid 
from machinery, the application and the force of this argu- 
ment can readily be seen. Where one man makes hats, an- 
other coats, another boots, another raises wheat, another bakes 
bread, and so on, through the varied round of industries, it is 
evident that the maker of hats will work only so long as he 
may be in want of and intending to obtain, as soon as by the 
sale of hats he shall have supplied himself with the means 
of purchase, other consumable articles; namely, coats, boots, 
bread, etc Under these circumstances, the production of 
consumable articles being called into action only by the desire 
and intention of the producer forthwith to obtain other con- 



364 QUARTEBLT JOUBNAL OF ECONOMICS 

somable articles, the demand for oonsumption mast always 
be eqaal to the production of articles to be consumed. In 
recent years, however, an element, previously of little weight, 
has become developed into a most important force in the 
social and industrial world. To-day, the desire presently to 
obtain consumable articles is by no means the sole incentive 
to production. A large part of the production of the present 
day is in fact prompted by a very different desire ; namely, 
the desire to obtain investments which will, during future 
years, be a continuing source of annual income to their owner, 
such investments consisting in the msun, either directly or 
indirectly, of what may be called the machinery of produc- 
tion and distribution, — in other words, of factories, railroads, 
steamships, warehouses, etc. Many men labor and produce 
to-day, not so much that they may presently consume and 
enjoy the products of labor, as that they may increase their 
ownership of this machinery by the building of new factories, 
ships, railroads, warehouses, etc. 

If this desire to accumulate income-producing investments 
should be carried to an extreme, — if all men should, as is the 
case with many miserly persons to-day, deny themselves as 
far as possible the present enjoyment of consumable articles 
in the attempt to create and acquire the machinery of produc- 
tion and distribution, — the machinery would under such cir- 
cumstances soon be found to be in excess of the use that the 
world was ready to make of it, there would be found to exist 
a minimum of the consumption of products and a maximum of 
the machinery for the creation of products. Then, inasmuch 
as the machinery of production would be the property of 
various individuals, each looking out solely for his own in- 
terests, it would happen that, when an individual found that 
the existing machinery similar to his own was capable of a 
production in excess of the demand and not salable except at 
a loss, he would not, in order to reduce production, stop the 
running of his own machinery, but, seeing that if he should 
stop his machinery he would still be subject to a large ex- 
pense for its care and preservation, that it would rust and 
deteriorate, that his skilled workmen would scatter and be lost 



NOTES AND MEMORANDA 865 

to him, that his nsaal costomere would be forced to supply 
themselTes with the products of rival manufacturers, and that 
the trade thus lost might never be recovered, — seeing that all 
these mischiefs would result from his own stoppage of produc- 
tion, he would endeavor, to the extent of his means, to keep 
his own machinery running and to force upon his competitors 
the loss necessarily consequent upon such a stoppage. Thus, 
the excess of machinery would necessarily bring about a pro- 
duction in excess of the demands of the market. Thus, a 
large and powerful class in the community — namely, the own- 
ers of the immense mass of the machinery of production — 
would be induced to "go on adding to production** solely 
from a desire to protect and save their previously acquired 
property, — a condition of affairs the existence of which must 
be as fatal to the argument of Mill as would be the existence 
in human nature of a willingness and readiness to labor for 
production solely for the pleasure to be derived from the mus- 
cular effort involved in the process. 

If general overproduction may thus be brought about by 
an excessive development of desires now largely influencing 
human conduct, it is shown to be by no means an impossi- 
bility, but a result not only possible, but unavoidable, when- 
ever in the world generally the desire to postpone the present 
enjoyment of consumable articles, in order Uiereby to accu- 
mulate the machinery of production and distribution, shall 
be developed out of due proportion to the desire presently 
to consume and enjoy the products of that machinery. 

Ueikl H. Crocker. 



There is undoubtedly a sense in which the machinery of 
production and exchange might be multiplied in excess of 
human needs. If, with our present population, the number 
of farms, mills, and shops were increased tenfold, most of the 
increase would have to stand unused for the lack of work- 
men. This,' however, does not appear to be the sense in 
which Mr. Crocker speaks of an excessive creation of machin- 
ery. What he fears is an overproduction of commodities, 



366 QUABTEBLT JOURNAL OF ECONOMICS 

and that, clearly, idle mills and farms wonld have no tendency 
to bring about. Machinery tells only when directed by human 
labor, and then, for the present question, only in so far as, by 
increasing production, it enables men to save more if they 
will. Strictly, the whole question turns on the effects of 
increased saving, and may arise in the simplest conditions of 
production as well as in the most advanced. If men could be 
relied on to consume promptly every increase of product 
gained by the extension of machinery, Mr. Crocker, as I under- 
stand him, would not apprehend any^ danger of overproduc- 
tion, no matter how great the increase of commodities. I 
shall therefore, for the sake of brevity, drop machinery out of 
the account, and consider simply the bearing of increased sav- 
ing on the demand for commodities. 

Perhaps we shall most easily detect the weak point in Mr. 
Crocker's reasoning by noting that the word "demand,** as 
he uses it, has two very different meanings, which he fails to 
distingubh. In relation to selling things, demand for a com- 
modity means the offer of some other commodity in exchange 
for it: whereas, in relation to the use of savings, demand 
means the offer of labor in return for commodities. 

Now, as regards the first of these senses, it is obvious, in the 
very nature of the case, that demand as a whole can never 
be less than supply as a whole. Supply of one thing is a 
demand for some other thing. Selling and buying are mmply 
opposite views of one and the same act of exchange. The 
motive of the seller cannot lessen or postpone his demand of 
an equivalent from the buyer. To offer things to other men 
without the desire to get some other product of labor at once 
in exchange, is not to offer things for sale at all. 

Demand, in the other sense, takes us out of the region of 
buying and selling altogether. Here we have to deal with 
capital and labor. Demand for savings is the offer of labor 
for wages. In order that the supply of capital shall exceed 
the demand for it, there must be more capital offering for 
labor than the laborers are willing to receive! The mere 
statement of the case is sufficient to show its absurdity. 

S. M. Maovaite. 



NOTES AND MEMORANDA 867 

THE THEORY OF PROFIT-SHARING. 

If there is any sound theoretical basis for the plan of profit- 
sharing, some exposition of it is called for by the publication 
in the Qttarterh/ JotemoU of JEconomics of a criticism in which 
the general conclusion is affirmed that there would seem to 
be ^Hheoretical reasons for doubting the justice, the reason* 
ableness, and the efficiency of the scheme as a possible re-ar- 
rangement of the industrial system.'' By theoretical reasons, 
a priori reasons are meant. The point is well taken in Mr. 
Aldrich's paper that, in current discussion, the advocates of 
profit-sharing base their argument, for the most part, upon 
cases in which the scheme has been adopted, but that those 
cases are too few and exceptional to serve as a sufficient basis 
for an induction of such magnitude as one concerning a pos- 
sible re-arrangement of the economic system of society. 

This reminder that a scientific justification of profit-sharing 
must be a deductive one should be welcomed. Any complete 
theory must admit of deductive formulation, since it is only 
through deduction that generalizations, inductively established, 
are correlated with wider and the widest truths, and scientific 
principles, strictly so called, are ascertained. And, if profit- 
sharing is wrong in principle, the sooner we have done with 
it, the better. 

On a priori grounds, then, I think it can be successfully 
maintained that profit-sharing is presumptively a better ar- 
rangement, economically and morally, than the simple wages 
system : (1) because a legitimate deduction from those prin- 
ciples of human nature that are the premises of deductive 
economics is that more wealth will be produced under profit- 
sharing than under the unmodified wages system ; (2) because 
a legitimate deduction from the postulate of distributive ethics 
and one of the cardinal truths of political economy b that 
profit-sharing effects a more equitable distribution than can be 
effected by the unmodified wages system. 

A premise of all deductive economics is that self-interest is 
the chief motive in the creation of wealth. If this prembe is 
valid, the wages system, judged by an absolute standard, is 



a68 QUABTEBLT JOUBNAL OF ECONOMICS 

aneconomioal. It enlists the self-interest of the wage-earner 
bnt partially. The great moral forces of his personality are 
not called into creative action. The fixed amount of his 
wages measures the effort that he feels disposed to make. On 
the other hand, the effort of the worker whose reward is to 
be a profit in some d^ree proportionate to his achievement is 
limited only by the limitations of his own physical, mental, 
and moral powers. The most that conld be shown for the 
wages system would be that it was relatively economical; 
that, in consequence of certain concrete facts, it proved to 
be, in practice, more economical than any known and tried 
substitute. But this could be proven only by induction, and 
the burden of proof would be on those who should deny the 
valid deduction that a system that enlists self-interest more 
than the wages system enlists it ought to be more economical. 
The data for such an induction are incomplete, as has been 
admitted ; but, so far as they exist, they verify the deduction. 
The presumption, therefore, is that profit-sharing is more 
economical than the unmodified wages system. 

The postulate of any soun^ theory of the ethics of distribu- 
tion is that every productive worker should be rewarded ac- 
cording to the real worth of his services to society. Any 
other postulate means communism. But, if we accept this 
postulate, we are compelled to make damaging admissions in 
regard to the ethics of distribution under the wages system. 

When the rate of profits is such that the competition of 
employers, in their effort to secure workmen, increases, caus- 
ing them to accept a smaller fraction of net product as their 
profit, and to allow a larger fraction for wages, there are two 
hypothetical possibilities to be considered. Either the in- 
crease of profits is instantly offset by a rise of wages or the 
rise of wages is only after a certain time. To affirm that the 
causation is instantaneous is to eliminate the element of time 
from the process of competition, — a palpable absurdity. If 
the rise of wages is only after a certain time, we must admit 
either that the rate of profits has been too high and the rate 
of wages too low to correspond with the ethical standard, or 
that competition is now w6rking injustice by rewarding labor 



NOTES AND MEMORANDA 

in excess of its deserts at the expense of the employer, who is 
obliged to accept less than his deserts. A cardinal principle 
of deductive economics is that competition does, in the long 
run, and in the average of cases, reward men according to 
the relative values of their services, but that this action of 
competition may be imperfect in the particular case. So far 
as it is imperfect, the wages system is ethically defective. 
Assuming that, in the average of cases, the action of competi- 
tion realizes the ethical ideal, it follows that, in the average of 
such cases as we have just supposed, the rate of profits hfia been 
too high and the rate of wages too low to correspond with the 
ethical standard. That is, we are compelled to admit that 
profits may contain at any given time a sum in excess of the 
normal equitable reward of the services rendered by the em- 
ployer, — a sum which it will be the function of further com- 
petition to distribute with approximate equity. 

What is the origin of this sum ? In some form, it is con- 
tained in the value of the net product of industry. The 
problem is to distinguish it from interest and the legitimate 
reward of the employer functions, and to see in just what way 
it comes into existence. 

Wages are not only not paid out of capital, but, as Pro- 
fessor Henry Sidgwick has shown, they are not so much as 
advanced out of capital. Strictly spelling, they are simply 
capital in one form exchanged for capital in another form, the 
latter being the utility created by the laborer. 

But the price at which the utility created by the laborer 
will sell may not be known when the wage is paid. Wages 
may be paid on the basis of a probable minimum price. The 
employer may reason : " This product will doubtless sell for 
at least so much. This price must afford me my reward for 
the industrial services that I render, interest on the capital 
that I employ, rent and incidental expenses, and something 
towards the fund reserved against losses. The remainder I 
can pay out in wages. More than this remainder I shall not 
pay, unless compelled to do so by other considerations than 
the immediate value of my business to myself. My demand 
for labor stops at this point; since, if I pay more, the excess 



370 QUABTEBLY JOUBNAL OF ECONOMICS 

must come oat of the sum that I consider the rightful reward 
of my own services." 

Nevertheless, the employing producer conducts his business 
in the hope that the actual price his goods will fetch will ex- 
ceed this minimum, h3rpothetical price, to which he adjusts 
his scale of expenses; and, when prices are rising, the hope 
is fulfilled. His profits then include a sum entirely distinct 
from the reward of his industrial functions already provided 
for. It is an increment due solely to social changes of one 
or another kind, which have increased the demand for his 
goods and raised their price. While the product of industry, 
considered as concrete wealth, is created by the combined 
efforts of labor, capital, and management, there is a coefficient 
in the value of this product that is created by the social orgui- 
ism as a whole. 

This coefficient is sometimes a negative one. A rhythm of 
alternately rising and falling prices is an inevitable phenom- 
enon in commercial communities. When prices are rising, the 
expectation that the rise will continue leads to speculative 
production and buying. Goods are produced and bought to 
be sold at the higher price looked for. Reservoirs of goods, 
stored up for future sale and use, are thus created. When 
the point is reached where the least daring buyers cease to 
buy, the price ceases to rise. All speculative buying stops. 
The expectation of a rise changes to the expectation of a fall, 
and the universal desire to sell before the price has fallen so 
far as to cancel all the gains of the rise, hastens the falL So 
long as goods remain in the wholesale and retail reservoirs 
in excess of the demand for current consumption, prices will 
continue to fall. When the surplus stores are exhausted, the 
mercantile expectation swings back to an anticipation of 
rising prices, and speculative operations begin again. So 
occur the rhythms of industrial booms and depressions con- 
cerning the causes of which there has been so much discus- 
sion. Generieally, they are the necessary results of normal 
human motives acting in accordance with normal calculations 
of probabilities. They may be intensified or moderated by 
the action of co-operatmg causes. 



NOTES AND MEMORANDA 871 

In the community at large, population remaining constant, 
the gains and losses by rising and falling prices most balance 
each other ; but there is no necessary equivalence of gains and 
losses in the transactions of the employing producer. On the 
contrary, the mercantile art, the practice of which is one of 
the chief functions of the employing producer, consists to no 
small extent in securing the gains and avoiding the losses 
made by price fluctuations. Different industrial classes have 
in very different degrees the quality of economic elasticity; 
that is, the power of reacting upon and transmitting the vari- 
ous forms of economic shock and pressure. This power is 
least among the consumers of final utilities and the producers 
of the primary utilities, — raw materials and crude work; and 
upon these classes, therefore, the major part of all losses ulti- 
mately falls. Wealth is not created by speculative produc- 
tion and exchange. It is only transferred from the ownership 
of the timid and uninformed, and those whose necessities are 
pressing, to the ownership of those who are bold, welt-in- 
formed, far-sighted, skilful, and in command of ample re- 
sources. Through the speculative buying of the laborer's 
work, a part of the price which society as a whole pays for 
that work is transferred from the laborer to his employer. 

There is another sum that tends to find its way into the 
employer's gains, as an addition to the normal reward of his 
services, which is created by the mere growth of society, apart 
from any advance in prices. Social growth creates a demand 
for a constantly increasing quantity of every sort of staple 
goods. The greater the quantity demanded and sold, the less 
is the cost of production per unit of product. Not that the 
mere multiplication of human beings is itself creative of 
wealth, but that the multiplication of utilities by the produc- 
tive labor of additional human beings enhances the utility 
created by each one. It does this by creating the means for 
more perfectly utilizing all labor and all means of production. 
Prices of goods and wages of labor remaining the same, the 
employer's gains per unit of product would constantly increase) 
in an advancing society. 

Actually, prices of goods and wages of labor cannot remain 



372 QUABTEBLT JOURNAL OF ECONOMICS 

the same. Competition inevitably distributes these gains, and 
the increase of wealth by the more perfect utilization of labor 
and capital in consequence of social growth becomes the source 
of increasing wages and falling prices. 

In so far as values created by social changes are distributed 
among all classes in proportion to the worth of their services, 
the ethical requirement is met. A certain ratio must exist 
between the average consumption and the average production 
of any aggregate of men, and a distribution on the double 
basis of production and consumption should be found to be 
approximately proportionate to the worth of the services. 
But competition is a defective process for effecting such a dis- 
tribution. We have already noted that the competitive 
process takes time.* It is only after gains in excess of the nor- 
mal reward of his functions have gone into the hands of the 
employing producer that competition begins. 

When actual competition does begin, it goes to excess in pro- 
portion to the excessiveness of previous gains. Normal profits 
may be now encroached upon, and the losses so incurred may 
fully offset the previous excessive gains. But the important 
fact is that the wage-worker and the consumer get no wrongs 
righted. The excessive competition, instead of correcting the 
distributive error already made, doubles it. President Francis 
A. Walker has shown that the profits of employers of different 
degrees of ability vary in accordance with the same principle 
that governs the rent of lands of unequal degrees of fertility. 
Whatever brings a new margin of inferior soil under cultiva- 
tion increases the rent of all lands of better quality. What- 
ever brings into the class of employers those men whose busi- 
ness abilities are so small that ordinarily they would find their 
place as employees raises the profits of the employers of 
superior abilities. Conversely, we may say with equal truth 
that, when the profits of the superior employers are in excess 
of the normal reward of their functions, men of inferior abilities, 
who otherwise would remain employees, will be drawn into the 
employing class, and that the costs of production borne by 
the community at large will be correspondingly increased. 
When, in consequence of excessive competition, bankruptcies 



NOTES AND MEMORANDA 373 

follow and capital is destroyed, the productive power of the 
comnmnity is impaired, and workmen are thrown out of em- 
ployment. 

To summarize: Competition begins only after gains in 
excess of normal profits have accrued to employing producers. 
As a consequence of this fact, when competition does begin, 
it goes to excess. As a further consequence, capital is wasted 
and the cost of production is increased. Thus, the movement 
of competition, like the movement of prices, inevitably as- 
sumes a rhythmical form. The losses that multiply during 
the period of excessive competition fall mainly on the pro- 
ducers of primary utilities and the consumers of final utilities. 
The gains that are made during the period of deficient compe- 
tition accrue chiefly to those who occupy the middle places 
in the industrial series and exercise mercantile functions as 
producers and exchangers of secondary and final utilities. 
Therefore, beyond that ethical defectiveness of competition 
due to the unequal competitive abilities of the rich and the 
poor, the well-informed and the ignorant, which has been 
often recognized, the competitive process itself is inherently 
defective, ethically and economically, as a distributive agency. 

Making no attempt to do away with or limit competition^ 
profit-sharing corrects the radical defect of competition at the 
points where the defect arises. To the time element and the 
element of indirectness the inherent defects of competition 
are due. Profit-sharing as a distributive agency simply elim- 
inates the elements of time and indirectness from the dis- 
tributive process. It divides immediately upon its produc- 
tion and directly among the rightful beneficiaries, in propor- 
tion to their services, the value created by social growth and 
change, which otherwise would be divided tardily and indi- 
rectly, and therefore imperfectly, by competition. 

Acknowledging the approximate equity of distribution by 
competition, profit-sharing accepts this distribution as the 
basis of its own anticipatory, supplementary, and corrective 
distribution. The bonus to workers is divided on the basis of 
their wages; the bonits to consumers, on the bads of their 
purchases. Logically, this principle ought to be observed 



874 QUABTERLT JOURNAL OF ECONOMICS 

more strictly than it usually is. The question is often asked, 
"In what proportions should the surplus be divided among 
workers, stockholders, and managers?*' Obviously, in the 
proportions that wages, salaries, and interest bear to each 
other interest being proportionate to the risks of the invest- 
ment. For example, if the wages paid by a corporation 
amount to 1100,000 a year, the interest on the capital em- 
ployed is $20,000, and the salaries aggregate 120,000, the net 
profit remaining after these sums have been paid should be 
divided in the proportions 5, 1, and 1. Logically, too, there 
should be a dividend to the customer, as in distributive co- 
operation, which should take the place of all discounts on 
large sales. English co-operators contend that capital per se 
should not share in the bonus. If a secured loan, it should 
not. If exposed to the risks of the business, it should. 

What are the theoretical objections to profit-sharing? 

It is not a valid objection that profit-sharmg is, and may 
be always, a plan of partial or occasional application, and not 
the prevalent industrial system. It is legitimate to inquire 
what favorable reactions upon the wages system may be 
expected from the adoption of profit-sharing by any influ- 
ential portion of the employing class. 

It is not a valid objection to say that wages are a conmiuta- 
tion of the workman's theoretic share of the industrial prod- 
uct, the sum deducted being the premium paid for the 
insurance of that share, the employer assuming all risks of 
loss. Wages paid in connection with profit-sharing are not 
a conmiutation. They are a partial payment of the work- 
man's theoretic share, as the sums taken by the employer in 
the form of salary or otherwise for his current personal 
expenses are a partial payment of his theoretic share. Work- 
man and employer both may receive, ultimately, the remain- 
der of their theoretic shares, or they may find that they both 
have worked to some extent for nothing. But, if one loses, 
the other loses. Their risks are the same. 

It is not easy to see how wages can ^be regarded as a 
commutation in any case, so long as the employer claims and 
exercises the right to reduce them at wilL To make a com- 



NOTES AND MEMORANDA 375 

pariBon, what sort of fire insurance would that be in which the 
insurers reserved the right to deduct a per centum from the 
face of every policy, whenever the yearns business looked 
unpromising, agreeing to restore it when business was better? 
The insured might possibly suspect that they bore a part of 
the risks themselves. 

If by risk any objector to profit-sharing means the risk that 
the employer incurs of losing not only a part of his rightful 
share in the industrial product, but also a part of his past 
accumulations, and the objection is urged that there can be 
equitably no profit-sharing unless the employee can and does 
become liable for a part of such losses, the reply is that the 
objector confounds two distinct things. If, besides the share 
of the industrial product that rightfully should go to him as 
a workman, the employee is to receive also a part of the share 
that properly belongs to the undertaking capitalist, he should 
be liable with the €nir€preneur for losses of capital, but not 
otherwise. This distinction marks the difference between 
simple profit-sharing, which we have been considering, and 
the industrial partnership, properly so called, — a higher and 
more complex industrial organization. 

Any practical difficulties that there might be in maintaining 
a good understanding between employers and employees as 
to the right distribution of gains and losses, would afford no 
theoretical objections to profit-sharing. An objection on this 
account could be raised and answered only by an inductive 
study of actual experiments, and these, so far, do not sustain 
such objections. 

There is no valid objection to profit-sharing in the fact that 
the dividend on wages may nearly or quite disappear, as in the 
case of the Paris and Orleans railway. If the distribution has 
been put on the right basis at the outset, the disappearance of 
the bantUj the business being prosperous, can have no other 
significance than as showing that the preliminary distribution 
in wages, interest, etc., has corresponded so closely to ethical 
and economic requirements that no corrective, supplementary 
distribution is necessary or possible. The profit-sharing ar- 
rangement has become a test and measure of the rightness of 



376 QUABTEBLT JOURNAL OF ECONOMICS 

the preliminary distribution in wages. The chances are, how- 
ever, that the disappearance of the bonus indicates that the 
basb of division is a wrong one. 

Finally, there is no valid objection to profit-sharing in the 
possibility that, of two profit-sharing corporations, one, man- 
aged by a head of great ability, may make large dividends for 
employees in addition to large dividends for stockholders, while 
the other, badly managed, pays little to stockholders and noth- 
ing to employees beyond their wages, although, under the stim- 
ulus of expected dividends, the latter have worked as faithfully 
as the employees of the more successful corporation. The 
assumption that in such a case, equal work would receive une- 
qual rewards is untrue, because the unequal rewards would sift 
the workmen. The best workmen would find their way into the 
employ of the prosperous concern, the inferior workmen would 
be left to the unprosperous one. The assumption that the slack 
or dull-witted employer would institute profit-sharing at all is 
humorous. The assumption that any part of the profit that has 
been created by the ability of the manager could go to any- 
body but the manager, without violating the ethical principles 
of profit-sharing itself, betrays a theoretical misconception. K 
wealth created by the manager goes to somebody else, it 
shows, not that profit-sharing is wrong, but that the mauler's 
salary is less than he earns. 

FitANKLIN H. GiDDIKOS. 



ENGLISH LABOR STATISTICS. 

Important steps have been taken by the English Board of 
Trade for the publication of labor statistics, under the resolu- 
tion of the House of Commons of March 3, 1886. That reso- 
lution, it may be remembered, was introduced by Mr. Brad- 
laugh, and led to an animated discussion, in which the failure 
thus far to present in the government publications any trust- 
worthy information as to the real condition of the laboring 
class was distinctly brought out by more than one speaker, 
the House finally resolving in favor of immediate steps to 



NOTES AND MEMORANDA ^TJ 

secure the full and accurate collection and publication of 
labor statistics. 

The Board of Trade some time later announced that they 
had undertaken, first to collect and arrange the statistics as 
to wages scattered through the Blue-books for the last fifty 
or sixty years, together with some other statistics relating to 
wages in the same period. It is expected that the volume on 
this subject will be ready in April or May, and that it will be 
serviceable as well as bulky and elaborate. Arrangements 
have also been made for collecting detailed information as 
to wages at the present time, including such essential condi- 
tions as the hours of labor, steadiness of employment, and the 
like ; and, for this purpose, sixty thousand schedules have been 
sent out to employers, the answers on which are hereafter to 
be digested for publication. 

Besides obtaining statistics showing the condition of labor 
in foreign countries, the Board of Trade also propose to col- 
lect and arrange information as to prices, production, and 
cost of living. As a large mass of information of this sort is 
already in their possession, and needs nothing but tabulation 
to make it available, they hope to publish a volume in the 
course of the present year. 



RECENT PUBLICATIONS UPON ECONOMICS. 



[Cliiefly publiflhed or annonnoed since December, 1880.] 



L GENERAL WORKS, THEORY AOT) ITS HISTORY. 



Ba800m(J.). Sociology. New York 
and London : G. P. Putnam's 
Sons. 8yo. pp. 264. $1.50. 

Bbants (V.). La Circulation des 
Hommes et des Biens. Precis des 
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ters. 8to. pp. 291. 8 fr., 50 c 

De Wilson (F. A. B.). Analysis of 
Adam Smith's Wealth qfNationa. 
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Precis d'Economie Politiane: Les 
:^Mments. Paris: Chevalier Ma- 
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MoLiKABi (G. de). Les Lois Nat- 
urelles de TEconomie Politique. 
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Nburath (W.). Elemente der 
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Manz. 12mo. pp.239. 2.40 m. 

Phillips (J. P.). Social Stru^les : 
The Fundamental Facts and Prin- 
ciples relating to Values, Prices, 
Money. [N^ational banks, silver, 
socialismJlabor, etc.] New Haven: 
Press of Tuttle Morehouse & Tay- 
lor. Svo. pp.540. $8.00. 

ScHAKFFLB (A. E. F.). Gesam- 
melte Auisatze. Band IL 
(Schluss). Tubingen: Laupp. 
8vo. pp. 314. 6 m. 



SCHONBEBO (G.) [Editor]. Hand- 
buch der PoUtischen Oekono- 
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completing the second edition.] 
Tubmgen: Laupp. 20 m. for 
vol. 2. 

Sncm (Lorenz von). Lehrbuch der 
Natlonaldkonomle. 8d revised 
ed. Vienna: Manz. 8vo. pp. 
472. 10 m. 

Wood (H.). Natural Law in the 
Business World. Boston: Lee A 
Shepard. 16mo. pp. 222. 75 cts. 

In Periodicals. 

Atkinson (E.). The Mai^ of 
Profits. Century, April. 

Boehm-Bawerk (E. von). Grund- 
zuce der Theorie des wirthschaft- 
lichen Guterwerths. H.Theil (con- 
clusion). Jahrb. f. Nat Oek., 18, 
Heft 6. 

Clark (J. B.). Limits of Com- 
petition* PoL ScL Quarterly, 
March. 

CooNETTi DE M ARTOS (S. ). H Car- 
attere della Scienza Economica 
secondo il Sig. Macleod. Glom. 
degli Econ., March. 

Ely (R. T.). Political Economy in 
America. N. Am. Rev., Feb. 

GiDDiNGs (F. H.). Persistence of 
Competition. Pol. ScL Quarterly, 
March. 



n. ECONOMIC HISTORY AND DESCRIPTION. 



BoNWiCK (J.). The Romance of 
the Wool Trade. London: Grif- 
fith, Farrar & Co. [Announced.] 

Hbrkner (H.). Die Ober-elsasser 
Baumwollenindustrie und ihre Ar- 
beiter. (Heft 4 of Abhandlungen 
from the Political Science Seminar 



in Strasburg.) [Announced.] Stras- 
burg: Triibner. 8 m. 
KocHTiTSKY (O.). The OfiSclal 
History of the Great Strike of 
1886 on the South-western Rail- 
way System. Jefferson City. 8vo. 
pp. 117. 



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379 



Naoai. Die Landwirthschaft 
Japan's, ihre Gegenwart und Zu- 
kanft. Dresden: Schonfeld. 8to. 
l.bOm. 

Nasse (E.). Ein Blick auf die 
Kommerzielle und Industrielle 
Lage Englands. [Reprint from 
Jahrb. f. Nat. Oek., 14, Heft 2.] 
Jena : 6. Fischer. 8vo. pp. 64. 

In PeriocUcala. 

BiBNATM^ (G.). Les Prix en 1790 
[with notices of history of prices 
in France]. Joum. de la Soc. de 
Statistique, Dec. 

Lbbot-Bbaulieu (P.). Les Vari- 
ations des Prix depuis Soixante 
Ans. Econ. Fran^ais, Feb. 19, 26. 

SOHMOLLEB (G.). Studien uber die 



wirthschaftliche Politik Preus- 

sens, von 1680 bis 1786. 
XL Die wirthschaftlichen Zust&nde 

im Herzogthum Magdebunz: Be- 

Tolkerung, Ackerbau, Handel 

nnd Schiffahrt. Jahrb. f. G^esetzg., 

11, Heft 1. 
Stbauss (C). Die Hausindostrie 

im Deutschen Reiche [statistical 

information]. Jahrb. f. Nat Oek., 

14, Heft 1. 
Unsigned. Commercial History 

and Review of 1886. Economist, 

Feb. 19. 
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ique des Chevaliers du Travail. 

Traduit [from the Quarterly Joum. 

of Econ.] par S. R., Joum. des 

Econ., March. 



nL POPULATION, EMIGRATION, AND COLONIES. 



KuiCHOFF (A.). Die Bedeutung 
Deutscher Kolonisation in Yer- 
gangenheit und Gegenwart. 
Deutsche Revue, April. 

Pauliat (L.). La Politique Colo- 
niale sous T Ancien Regime d'apr^s 
des Documents . . . du Minist^re 
des Colonies. Paris : C. L^vy. 
18mo. pp. 347. 8 fr., 50 c 

Pbtbbs (K.). Deutsch-natiouale 
kolonialpolitische Aufsatze. 1 u. 
2ed. Berlin: Walther & Apolant. 
8vo. pp. 193. 4 m. 

ScHAEFFLB (A. E. F.). Koloulal- 



politlsche Studien. II. ArtikeL 
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In PeriodiccUa, 
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IV. PRODUCTION, MANUFACTURES, AGRICULTURE. 



Jaeoeb (E. ) . Die Hand werkerfrage. 
LAbth.: GreschichtederHandwer- 
kerbewegungen bis zum Jahre 1884. 
Berlin: Germania. 8vo. pp. 360. 
Bm. 

In Periodicals. 

Bbll (Sir L.). The Iron and Steel 
Trade. Fortnightly, Jan. 

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bung. (Review of Reports on Fac- 
tory Legislation in Switzerland 
and Saxony.) Jahrb. f. Nat. Oek., 
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Ehbbbro (K. T. ). Der Italienische 
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Jahrb. f. Gesetzg., 11, Heft 1. 

Harris (W. J.). The Cost of Food. 
Econ., Jan. 29, Feb. 5, Feb. 12, 
Feb. 26. 

MoLiNABi (E. de). La Crise de 
r Industrie du Sucre en Russie. 
Joum. des ificon., Jan. 

Unsigned. Russia's Cotton Indus- 
try and Trade. Economist, March 
12. 



380 



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V. EXCHANGE AOT) TRANSPORTATION. 



Albxakdeb (E. p. ). Railway Prac- 
tice : Its Principlea and Su^^ested 
Reforms Reviewed. New York : 
G. P. Putnam's Sons. pp. 60. 
75 cts. 

Dos Passos (J. R.). The Inter- 
State Commerce Act: An Analysis 
of its Provisions [with the text of 
the Act]. New York: G. P. Put- 
nam's Sons. 8vo. pp.125. $1.25. 

HuEBLiHAKK (H.). Die Eidgenoss- 
ische Eisenbahngesetzgebnng. Bin 
Hulfsbuch f. Prakt u. Theoret. 



Zwecke. Zurich: Orell. Fussli ± 
Co. 8vo. pp. 364. 10 fr. 
NoBDLiNG (W. de). Le Prix de 
Revient des Tiransporta par Che- 
min de Fer et la Question des 
Voles Navigables. Paris: Veuve 
Dunod. 8vo. pp. 80» and 2 pL 

In PeriodicaU, 
Jeans (J. S.). On the Cost and 
Conditions of Working Railway 
Traffic in Different Countries. 
Stat. Joum., Dec 



VL INTERNATIONAL TRADE AND CUSTOMS TARIFFS. 



Adlbb (H.). Zur Emeuerung der 
Handelsvertrage. Vienna: frick. 
8vo. pp. 55. 

Bastablb (C. F.). The Theory of 
International Trade. London : 
Simpkin, Marshall & Co. 16mo. 
pp. 176. 

Dekoninok (A.). Le Monde Eco- 
nomique et ses Relations Com- 
merciales avec la Belgique. [Ire 
series, Hes Britanniques.] Brus- 
sels: C. Muquardt. dvo. pp. 180. 
3fr. 

Fabbb (R.). Die Englische Getrei- 
dehandelspolitik von 1688 bis 1815. 
[Abhandlungen of Political Sci- 
ence Seminar at Strasburg, Heft 6.1 
Strasburg: Triibner. [Announced. J 

Mamboth (K.). Die Entwickelung 
der Oesterreichisch-deutschen 
Handelsbeziehungen vom Ent- 
stehen der Zolleinigungsbestreb- 
ungen bis zum Ende der aus- 
schliesslichen ZoUbegunstlgungen. 
(1 84»-1865. ) Berlin : Heymann. 
Hvo. pp. 199. 4 m. 

Stebbins (G. B.). The American 
Protectionist's Manual. Chicago : 
C. H. Kerr A Co. 12mo. pp. 192. 
75 cts. 

Wilbbaitot (C). Das fortschrei- 
tende Sinken der Prelse unter der 



Herrschaft der Schutzzollpolitik. 
Hauptsachlich aus landwirth. 
Gksichtspunkten behandelt. Wis- 
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In Periodicala, 

GoDKiN (E. L.). Some Political 
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Howell (G.). The State of our 
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Zollverhaltnisse und der geplante 
ZoUvereln der Skandinavischen 
L&nder. Jahrb. f. Gesetzg., 11, 
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Medley (G W.). Fair-trade Fog 
and Fallacy. Nineteenth Cent., 
Feb. 

Unsigned. Commerce Special de 
la France [imports and exports 
analyzed], 187^-86. Econ. Fran- 
^ais, Feb. 5. 

Unsigned. Das Merinoschaf und 
derWoUzolL Viertelj. f. Volksw., 
24, Band L, 1, 2. 

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in Great Britain. By an Ameri- 
can Free Trader. Westm. Rev., 
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Vn. FINANCE. 



Adams (H.C.). Public Debts. New 
York: D. Appleton & Co. [An- 
nounced.] 

Alessio (G.). Saggio del Sistema 
Tributario in Italia e sui Effetti 



Economici e SocialL Vol. II. (le 
Imposte Indirette e le Tasse). To- 
rino: Fratelli Bocca. 8vo. pp. 
1005. 16 fr. 
Anonymous. Question du Cadastre. 



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381 



Quelqaes Reflexions sur la Revi- 
sion Int^grale da Cadastre. Par 
on Propri^taire d'Indre et Loire. 
Tours : Semeor-Leplaine. 8vo. 
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Akoxyhous. Situation R^elle des 
Finances de la France. ParA.B. C. 
Paris : Lemerre. 18mo. 1 f r. , 50 c. 

Clarke (H. W.). The ffistory of 
Tithes from Abraham to Queen 
Victoria. London: George Red- 
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Unsionbd. The Alternative to So- 
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APPENDIX. 



L 

PRICES IN GREAT BRITAIN. 

TABLE A. 

PRICES PUBLISHED BY THE LONDON << ECONOMIST," 8. BOURNE, 
AND R. H. I. PALORATE. 

The first use of index numbers to represent the changes of prices 
was made by the late Mr. Newmarch in a table published in the 
'* Annual Commercial History and Review " of the London Economut. 
The table is intended to show the movement of prices, during a series 
of years, for twenty-two articles in the English wholesale markets. 
Taking the average price for 1845-50, in every case, as the standard, 
represented by one hundred, the ratio of the price on January 1 and 
July 1 of every year is compared with this, the result being, in fact, 
a percentage. The sum of these x>ercentages for twenty-two articles 
is the index number for the year, as twenty-two hundred is the index 
number for 1845-50. Division by twenty-two reduces the series of 
index numbers to average percentages. The articles selected are as 
follows : — 

Coffee, sugar, tea, tobacco, wheat, bntcher^s meat, Sorat cotton, raw silk, 
flax and hemp, wool, indigo, oils, timber, tallow, leather, copper, iron, lead, 
tin, Pemambuco cotton, cotton yam, cotton cloth. 

While probably the best known of all tables, the figures of the 
Economut are open to serious objections: (1) As the editors an- 
nounce, the table *<does not, of course, present a full and accurate 
representation of the variations of prices, inasmuch as it cannot allow 
for the relative importance of the different articles." Wheat, for 
example, counts for no more than indigo. (2) The quotations on a 
given day do not show the state of prices for the year. (3) The 
articles selected are too few in number to insure a proper view of 
prices in generaL (4) The commodities are injudiciously chosen. 
There are four articles of cotton, causing serious distortion in the 
years 1862-67, and a disproportionate number of so-called raw ma- 
terials. The continuity of the Economut table since 1850 (inter- 



QUABTSBLT JOURNAL OF ECONOMICS 

mptod only for the yean 1852, 1854-56) explains the importance 
ascribed to it. 

In the Jawmal of the Statistical Society (June, 1879, pp. 418-417), 
Mr. Bourne corrected the figures of the Economiit by using only one 
quotation of cotton goods instead of four (the average of the four) 
and by adding coaL His table contains the prices of only twenty 
articles, and ends with 1879, but, in other respects, is like that of the 
EeonomiML 

Mr. Bourne also constructed a table from the prices of articles in 
the country of their production, using the average prices of the years 
1872-77 as the basis for comparison. His figures are taken from 
" the average of the years' transactions shown in the Statistical Ab- 
stractM/or Foreign Countries and for Colonial Possessions, issued from 
the Board of Trade," and run from 1860 to 1879, but for only seven 
articles, — wheat, cotton, wine, silk, rice, opium, and tea. 

In order to get a comparison with some Indian prices, which date 
back only to 1865, Mr. R. H. Inglis Palgrave, in the Appendix to the 
Third Report of the Royal Commission on Depression of Trade and 
Industry, 1886, p. 330, rearranged the figures of the Economist by 
taking the prices of the years 1865-69, instead of the years 1845-50, 
as the basis for comparison. 

Realizing the insufficiency of the method adopted in constructing 
the Economist table, Mr. Pidgrave prepared another table, based on 
the prices of 1865-69, " in which allowance is made for the * relative 
importance' of each of the articles selected, which are the same as 
those taken in the Economist" The relative importance of an article 
is reached by finding the relative proportions of the home trade in it 
(taking into account both quantities and values) to the total home 
trade in the twenty-two commodities. For example, in the year 1878, 
the home trade in cotton (raw) was £48,000,000, and in indigo 
£800,000, out of £306,450,000 for all the twenty-two articles. So cot- 
ton is assigned an importance of three hundred and forty-six, and 
indigo of only six, out of twenty-two hundred, the standard index 
number. Of course, both his tables are open to the same objectious 
as that of the Economist, except in the matter of "relative impor- 
tance." 



APPENDIX 



387 







Eeo 


nomist ' 


rable. 


Bonme* 


8 Table. 


PalgraTe*8 Tablet. 






BaaiB of 1872-77. 


Economist 
on baal8 
of 1866-69. 


Preceding 
corrected lot 
relative Im- 




















portance. 




i 


1 ^ 

1 £ 


H 


A 

r 


1^ 


If 


I 


la 


i 

St 


1846-60 


2200 


100 












1 

1 


1861 


Jan. 1 


2293 


104 


103 














1863 


Julyl 


2461 


111 


114 














1867 


»« 


2996 


136 


140 














1868 


Jan.l 


2612 


118 


123 














1869 


« 


2643 


116 


118 














1860 


u 


2692 


122 


123 


94 












1861 


it 


2727 


123 


124 


94 


113 










1»62 


«« 


2878 


130 


126 


96 


116 










1863 


«l 


3492 


168 


144 


109 


143 










1864 


« 


3787 


172 


161 


116 


170 










1866 


«t 


&'S76 


162 


138 


105 


176) 






r2366 


108 


1866 


<l 


3664 


161 


141 


107 


1321 






2434 


111 


1867 


« 


3024 


137 


128 


98 


I7fi\ 


2200 


100 


2179 


99 


1868 


*l 


2682 


122 


122 


93 


116 1 

HI J 






2058 


93 


1869 


« 


2666 


121 


118 


90 






11963 


89 


1870 


« 


2689 


122 


119 


91 


111 


1996 


91 


1976 


90 


1871 


II 


2690 


118 


118 


90 


106 


1981 


90 


2046 


93 


1872 


it 


2836 


129 


138 125 


101 


108 


2182 


97 


2197 


100 


1873 


*t 


2947 


134 


142 132 


108 


107 


2237 


102 


2298 


104 


1874 


l< 


2891 


131 


136 127 


103 


99 


2207 


100 


2878 


106 


1876 


l< 


2778 


126 


130 124 


99 


94 


2098 


96 


2126 


97 


1876 


l< 


2711 


123 


123 


94 


95 


2044 


93 


2186 


99 


1877 


♦« 


2723 


124 


126 


96 


97 


2064 


94 


2206 


100 


1878 


1* 


2629 


115 


118 


90 




1910 


87 


2081 


95 


1879 


«l 


2202 


100 


106 


80 




1676 


76 


1806 


82 


1880 


«« 


2S38 


115 








1918 


87 


1967 


89 


1881 


II 


2376 


108 








1782 


81 


2064 


93 


1882 


•« 


2436 


111 








1830 


83 


1908 


87 


1883 


«l 

Jnlyl 


2342 
2220 


107 
101 








1766 


80 


1924 


88 


1884 


Jan.l 


2221 


101 








1660 


76 


1760 


80 


« 


Jnlyl 


2170 


98 
















1886 


Jan.l 


2096 


95 








1662 


70 


1669 


76 


i< 


Jnlyl 


2048 


93 
















1886 


Jan.l 


2023 


92 








1609 


69 







TABLE B. 

PRICES COMPILED BY W. 8. JEV0N8. 

In 1868, Professor W. Stanley Jevons published a pamphlet 
entitled A Seriout Fall in the Value of Gold oicertainedj and it» Social 
Effects set forth. This was followed in 1865 by a paper in the 
Journal of the StatMcal Society, vol. xxriiL, pp. 294-320, on *< The 
Variation of Prices and the Value of the Currency since 1782 " ; and, 
in 1869, by a letter to the Economist^ 7oL xxviL, pp. 530-532, on « The 
Depredation of Gold." The three papers are reprinted in his col- 
lected InveetigoHoni in Currency and Finance (London, 1884). 



388 



QUARTERLY JOURNAL OF ECONOMICS 



In bis first pamphlet, Jeyonn collated from Tarioiia sonrees, chiefly 
from the Economist^ the prices of thirty-nine articles, namely : — 

I., mlTi»r, tin, copper, lead, bar iron, pig: iron, tin pUtee; II., palm oil, 
linsevil oil, talluw, hides, leather, timber, logwood, indi^; III., cotton (three 
erades), wool, ailk, flax, hemp; IV., wneat, barley, oats, rsre, beans, peas; 
v., hay, clover, straw, beef, mutton, pork, batter; VI., sugar, ^irits, tea, 
pepp«*r. 

These prices were reduced in the following manner. The average 
of the monthly prices daring each year was ciJcolated, — apparentiy, 
the arithmetical mean was taken, though this is not stated. Frcmi 
the yearly prices thus obtained, the simple arithmetical average price 
of each commodity for the six years, 1845-50, was first drawn ; and, 
with this six years* average as a base, the average price of every com- 
modity for every year from 1845 to 1862 vras compared. The results 
were expressed in percentages, the average of every commodity for 
1845-50 being expressed by one hundred. When, however, the percent- 
ages of the thirty-nine commodities were averaged for any one year, 
in order to secure the final indicator of the state of general prices for 
that year, Jevons calculated the geometrical mean of the percentages. 
Substantially the same method was followed in the paper of 1865 in 
the Statistical Journal; but, in this case, the final result was indicated 
only by a diagram, no tables being given of general prices. The 
method was again used in the Economist letter of 1869 ; and this time 
a table was given, indicating for selected years before 1847, and for 
all years between 1847 and 1869, the course of average prices of 
" about fifty of the chief articles of commerce," which, however, are 
not further specified. As to the uses of the arithmetical or geomet- 
rical mean, see a note in this Journal^ ante, pp. 83-86. 

Column one gives Jevons's figures of general prices as calculated 
in the Serious Fall, Column two gives the figures of the Economist 
letter, in which the average for 1849 is taken as one hundred. 





1. 2. , 




1. 1 2. 


Years. 


Average of 1845- Average of 1849 


Years. 


Averaire of 1846-'Averageof 1849 




60 taken as 100., taken as 100. 




60 taken as 100.1 taken as 100. 


1789 




133 


1855 


117.6 1 125 


1799 




202 


1856 


1225 ' 129 


1809 




24S , 


1857 


128.8 : 132 


1819 




175 


1858 


114.2 


118 


1829 




124 


1859 


116.0 


120 


1839 




144 


1860 


117.9 


124 


1845 


104.41 


|l 


1861 


115.1 


123 


1846 


105.4 


1 


1862 


113.4 


124 


1847 


'JJ:? h~ 


122 . I 


1863 




123 


1848 


106 '1 


1864 




122 


1849 


89.6 


100 li 


1866 




121 


1850 


92.1 J 


m \ 


1866 




128 


1851 


924 


103 1 
101 ' 


1867 




118 


1862 


93.8 


1868 




120 


1853 


111.3 


116 ] 


1869 




119 


1854 


120.7 


130 ' 









APPENDIX 



389 



TABLE C. 



PRICES COMPILED BY A. ELLIS. 

In the London Statist of Jane 8, 1878, Mr. Arthur Ellis published 
a table of the prices of twenty-five articles, taking his quotations and 
quantities from the Board of Trade returns for imports. The prices 
of the year 1869 were taken as a standard for comparison ; but the 
years compared are only 1859, 1878, 1876, and the first quarter of 
1878. Mr. Ellis used certain index numbers to indicate the relative 
importance of commodities, — e,g,^ cotton is rated at nineteen and 
indigo at one. The number 1000 multiplied by the index yields the 
standard for 1869, with which other years are compared. By this 
means, ''the purchasing power of money can be arrived at in the 
various periods." 





. 




RELATIVE COST IN 




Articles imported 


Index 
Numbers. 










or produced. 


















1869 






First 






1869. 


StanM. 


1873. 


1876. 


Quarter 
1878. 


AnimalB, oxen . . . . 


8 


6,300 


8,000 


7,700 


9,670 


9,116 


Animals, sheep 








6 


6,200 


6,000 


7,470 


7,460 


8,020 


Butter . . . 








2 


1,860 


2,000 


2,060 


2,200 


2,170 


Cheese 














1 


810 


1,000 


950 


880 


1,110 


Coffee 














1 


1,110 


1,000 


1,430 


1,540 


1,600 


Wheat 














' 15 


13,270 


16.000 


18,760 


16,030 


17,666 


Barley 














3 


2,630 


3,000 


3.100 


2,200 


3,230 


Maize 














2 


1.990 


2,000 


2,060 


1,900 


2,000 


Floor 














4 


4,110 


4,000 


6.370 


4,670 


6,200 


Spirits 














1 


1,020 


1,000 


1,230 


1,020 


1,006 


Sugar 














4 


4,230 


4,000 


3,900 


3,410 


3,640 


Tea . 














3 


3,120 


3,000 


2,840 


2,840 


2,635 


Tobacco 














1 


910 


1,000 


910 


1,000 


946 


Wine . 














2 


2,230 


2,000 


2,480 


2,290 


2,326 


Cotton 














19 


11,620 


19,000 


14,660 


11,010 


10,640 


IndiKO 














1 


820 


ilooo 


760 


650 


666 


Flax . 














3 


2,930 


3,000 


2,660 


2,660 


3,130 


Hides. 














, 1 


1,070 


1,000 


1,190 


1,240 


910 


Coal . 














8 


7,720 


8,000 


17,430 


9.060 


8,066 


Copper 














1 


1,530 


1,000 


1,260 


1,140 


1,010 


Iron, raw 














2 


1,980 


2.000 


4,300 


2.160 


1,856 


Silk . 














2 


1,670 


2,000 


1,720 


1,570 


1,475 


Tallow . 














1 


1,220 


1,000 


900 


940 


880 


Wood. 














2 


2,240 


2,000 


2,480 


2,190 


2,160 


Wool . . 














7 


9,090 
91,570 


7,000 


7,490 


7,980 


7,246 




100 


100,000 


116,060 


96,610 


98,476 



390 



QUABTEBLT JOURNAL OF ECONOMICS 



TABLE D. 



PRICES COMPILED BY ME. OIFFEK. 

In a Report to the English Board of Trade in 1885 on the Prices of 
Imports and Exports from 1861 to 1877, Mr. Robert Giffen presented 
a table of prices for exx>orts in the period from 1840 to 1888, and for 
imports from 1854 to 1888. The table inclndes thirty-five articles, 
with index numbers in which the relative importance of the artides 
is expressed. '*To get the 'index number,' my plan has been to 
ascertain the percentage proportions of the value of the exports of 
each enumerated article to the value of the whole export trade, 
in alternate years since 1861." (Journal of Statistical Society, 1879, 
pp. 66-68, 305-321.) Having ascertained tJie proportion of the value 
of the exx>orts of each article to the whole export trade, he adds 
together the numbers thus obtained for the thirty-five articles. In 
this way, he obtains an initial index number, which he fixes upon as 
65.8 for exx>orts. In a similar way, he settles upon 81.16 for imports. 
« An index number being thus formed, an average rise or fall may be 
shown by calculating the percentage of the rise or fall of each article 
on the portion of the index number assigned to it, the differences 
between the percentages of increase or decrease constituting an addi- 
tion to or a reduction from the index number, which immediately 
shows whether there has been an average rise or fall and how much.*' 
See also Contemporary Review, June, 1885, p. 812, for later figures. 
In the appendix to tiie Third Report of the Royal Comnduwn on the 
Depression of Trade and Industry, p. 329, Mr. Palgrave gives Mr. 
Giffen's figures, rearranging them on a basis of one himdred, starting 
with 1840 for exports and with 1854 for imports, as follows : — 





Exports. 


Per 
Cent. 


Exports. 


Pep 
Cent. 


Imports. 


Per 
Cent. 


Year. 


Base line of 
1840. 


Base line of 
1854. 


Base line of 
1854. 


1840 


79.14 


100 










1841 


76.76 


97 










1845 


n.85 


91 










1848 


63.37 


80 










1849 


60.51 


76 










18S2 


59.33 


75 










18S3 


64.66 


82 










1854 


64.86 


82 


64.85 


100 


80.36 


100 


1855 


63.05 


80 


63.05 


97 


84.67 


106 


1857 


66.57 


84 


66.57 


103 


88.24 


110 


1859 


66.20 


83 


66.20 


102 


79.77 


99 


1866 


89.26 


112 


89.26 


137 


94.75 


118 


1868 


77.22 


97 


77.22 


119 


86.89 


106 


1873 


86.73 


106 


85.78 


182 


86.69 


107 


1875 


74.47 


94 


74.47 


114 


81.41 


101 


1876 


68.06 


86 


68.05 


100 


77.60 


96 


i8n 


65.40 


82 


66.40 


101 


79.68 


99 


1878 






..... 


... 


74.12 


92 


1879 


solio 


'75 


09.70 


02 


70.86 


88 


1880 






..... 


... 


74.77 


99 


1881 


69'.54 


*76 


09.64 


92 


74.17 


92 


1883 


69.85 


76. 


69.85 


92 


71.73 


89 



APPENDIX 



391 



TABLE E. 
Pbiovs op Leadiho Wholbsalx CoMMODimn nr Janujlbt. Prspabbd bt Mb. 

QlVFBN, '< JOUBNAL OP STATISTIOAL SOOIBTT," 1879, P. 61, AJTD "CON- 
TBICPOBABT RBYIBW," JUVB, 1886. 





Jan. 
1873 


1874 


1875 


1876 


1877 


1878 


1879 


1883 


1885 


Iron, Scotch pig, 
Coal, Hetton, ) 
" Wall8end,J 
Copper, Chili bars. 
Tin, Straits, 
Wheat, Gazette av. 

Floor, town made, 
" New York, 


ton 


127s 
808 


107s 6d 
27s 6d 


80s 
30s 


648 8(f 
26s 


57s 6d 
19s 


518 6d 
18s 6d 


43s 

19s 


47s 8d 
17s 6d 


41ii9d 
188 


«< 

bu. 

sack 

bbl. 


£91 

£142 

56illd 

$1.70 
47s 6<i 

$7.50 


£84 

£120 

62s Icf 

$1.69 

58s 6<i 

$7.10 


£83 10s 

£94 

44s 8ce 

$5.15 


£82 

£82 

458 9(i 

$1.33 

42s 6d 

$5.50 


£75108 
£76 10s 
51s 6d 

$1.45 

40s 

$6.00 


£66 

£66 

518 9d 

$5.50 


£57 

£61 

398 7d 

$1.10 

37s 
$3.70 


£65 

£93 

40s 4d 

$4.30 


84s Ud 

$0.91 

a2a 

$8.25 


Beef, inferior, {^^^ 

" prime small. 
Cotton, Mid Upland, 
Wool, 
Sugar, Manilla, ) 

^ MOSOOT., f 


8 lbs. 
kToass 


8sl0(f 


88 9d 


ZaM 


4s 3d 


3s 3d 


2sl0d 


28l0d 


48 4d 


48 


« 
lb. 
pck. 

owt. 


6s 3d 
lOd 
£23 

214 6d 


68 6<f 

£19% 
18s 


5s 5(1 

£18te 
17s 


5s 3d 

7d 

£17108 

15s 


68 2d 

£16% 
228 


5s 

£15% 
148 6d 


48 9d 
16s 


T2 

168 6d 


58 44 

6d 

£11 

108 


Coffee, Ceylon, good, ) ^ 


808 


112s 6d 


84s 


908 6d 


878 6d 


848 9d 


65s 


788 6d 


7U 


Pepper, blk. Malabar, 
Saltpetre, foreign, 


lb. 
cwt. 


Id 
29s 


238ld 


7d 
228 6(2 


1886d 


■^ 


% 


IS 


■su 


8d 
168 3d 



TABLE F. 

PRIGB8 GOMPILBD BT A. BAUBRBECK. 

In the Journal of the SUUistical Society for September, 1886, Mr. 
Aagostns Sauerbeck has presented a table of prioes of thirty-eight 
articles for the period from 1846 to 1885, representing the average 
prioes of the eleven years, 1867 to 1877, by one hundred. His index 
numbers are computed by taking the arithmetical mean of the quota- 
tions. '' With but few exceptions," he says, " the prices g^ven are the 
average prioes in each year, either those officially returned or the 
averages of the twelve quotations at the end of each month, partly 
received from private firms, partly collected from the Eeonomkt and 
other publications. Where a range of prices is given, the mean has 
been taken between the highest and lowest quotations." The articles 
selected are as follows : — 

I., wheat (two grades), floor, barley, oats, maize, potatoes, rice ; 11., beef 
(two grades), mutton (two grades), pork, bacon, butter ; m., sngar (two grades), 
coffee, tea ; IV., pig iron, bar iron, copper, tin, lead, coals (two grades) ; Y., 
cotton (two grades), flax, hemp, jnte, wool (two grades), silk; VI., hides, 
leather, tallow, pahn oil, olive oil, linseed oil, petroleom (since 1872), soda 
crystals, nitrate of soda, indigo, timber. 



392 



QUARTERLY JOURNAL OF ECONOMICS 



(1) It IB to be regretted that all the prioes are not averages. 
(2) The relative importance of articles, also, is insufficiently repre- 
sented ; e.g,t olive oil has as great an influence on the index number 
as iron. (8) No satisfactory statement is made as to the sources 
from which he gets his quotations. (4) He admits that ''it was 
impossible to retain exactly the same standard for this long period 
[1846 to 1885], owing to the frequent alterations of descriptions ; and 
the old quotations for a few articles, such as sugar, coffee, and flax, 
must be considered as only approximately showing the course of 
prices." (5) The commodities are almost entirely raw produce. So 
that in sources of information, reliability, numbers of articles, and 
continuity of quotations on the same system, the most considerable 
collection of English prices falls behind the Hamburg table. 



Year. 


Vege- 
table 
Food 
(Corn, 
&c.) 


Animal 
Food 

(Meat, 
&e.) 


and 
Tea. 


ToUl 
Food. 


Miner- 
alA. 


Tex- 
tUes. 


Sundry 
Mate- 
nalB. 


Mate- 
rials. 


Grand 
TWal. 


1846 


106 


81 


96 


95 


92 


77 


86 


86 


N9 


1847 


129 


88 


87 


106 


94 


78 


86 


86 


•ft 


1848 


92 


83 


69 


84 


78 


64 


77 


73 


KH 


1849 


79 


71 


77 


76 


77 


67 


75 


73 


74 


1850 


74 


67 


87 


76 


77 


78 


80 


78 


77 


1851 


73 


68 


84 


74 


76 


75 


79 


76 


7ft 


1862 


80 


69 


75 


76 


80 


78 


84 


81 


78 


1853 


100 


82 


87 


91 


105 


87 


101 


97 


9ft 


1854 


120 


87 


85 


101 


115 


88 


109 


104 


S<K» 


1865 


120 


87 


89 


101 


109 


84 


109 


101 


SOI 


. 1866 


109 


88 


97 


99 


110 


89 


109 


102 


lOl 


1867 


105 


89 


119 


102 


108 


92 


119 


107 


lOft 


1858 


87 


83 


97 


88 


96 


84 


102 


94 


•1 


1859 


86 


85 


102 


89 


98 


88 


107 


98 


•4 


1860 


99 


91 


107 


98 


97 


90 


111 


100 


•• 


1861 


102 


91 


96 


97 


91 


92 


109 


99 


9H 


1862 


98 


86 


98 


94 


91 


123 


106 


107 


lOl 


1863 


87 


8-5 


99 


89 


93 


149 


101 


116 


103 


1864 


79 


89 


100 


88 


96 


162 


98 


119 


lOft 


1865 


84 


97 


97 


91 


91 


134 


97 


108 


lot 


1866 


95 


96 


94 


96 


91 


130 


99 


107 


109 


1867 


115 


89 


94 


101 


87 


110 


100 


100 


1041 


1868 


113 


88 


96 


100 


85 


106 


102 


99 


•• 


1869 


91 


96 


98 


94 


89 


109 


100 


100 


98 


1870 


88 


98 


95 


93 


89 


106 


99 


99 


96 


1871 


94 


100 


100 


98 


93 


103 


105 


101 


lOO 


1872 


101 


101 


104 


102 


127 


114 


108 


116 


109 


1873 


106 


109 


106 


107 


141 


103 


106 


114 


111 


1874 


105 


103 


105 


104 


116 


92 


96 


100 


109 


1875 


93 


108 


100 


100 


101 


88 


92 


93 


96 


1876 


92 


108 


98 


99 


90 


85 


96 


91 


9ft 


18n 


100 


101 


108 


101 


84 


85 


94 


89 


94 


1878 


95 


101 


90 


96 


74 


78 


88 


81 


87 


1879 


87 


94 


87 


90 


73 


74 


85 


78 


83 


1880 


89 


101 


88 


94 


79 


81 


89 


84 


88 


1881 


84 


101 


84 


91 


77 


77 


86 


80 


8ft 


1882 


84 


101 


76 


89 


79 


73 


85 


80 


84 


1883 


82 


103 


77 


89 


76 


70 


84 


77 


89 


1884 


71 


97 


63 


79 


68 


68 


81 


73 


76 


1886 


68 


88 


63 


74 


66 


66 


76 


70 


79 



APPENDIX 



398 



II. 

PRICES m GERMANY. 
TABLE G. 

PBI0E8 COMPILED BY B. LA8PBTBES. 

In 1864, Professor E. Laspeyres made an investigation of Ham- 
borg prices from 1831 to 1863, the results of which were published in 
the Jahrbiieher fUr Natumal-Oekonamie, voL iii. (old series), pp. 81- 
118, 200-236. His tables include forty-eight articles, of which the 
prices were ascertained for the first Friday of each month from the 
Hamburg AUgememer PreiseourarU, The arithmetical mean of these 
monthly prices yielded the average for the year. The general average 
for the decade 1881 to 1840 was taken to be one hundred. His final 
figures were : — 



Periods. 


Ayerage 
Fricee. 


Periods. 


Ayerag^e 
Prices. 


Decade 1831-40 


100 


Year 1857 


137.8 


" 1841-60 


d5.4 


1868 


118.6 


Year 1851 
*' 1862 


93.1 
94.3 


" 1860 
1860 


119.2 
126.4 


*' 1853 

1864 

" 1855 


112.9 
125.8 
132.2 


" 1861 
1862 
1863 


125.7 
126.4 
122.2 


** 1866 


134.2 


Decade 1854^ 


126.4 



TABLE H. 

PRICES COMPILED BY H. PAA8CHE AND B. VON DER BORGHT. 

In 1874 and in 1882, two notes on prices were printed in the 
Jahrbiieher JUr NaHonal-Oekonomiey vol. xxiii., pp. 171-173, and vol. 
xxxix. (vol. V. of new series), pp. 177-185. The first was signed by 
H. P. (H. Paasche) and the second by R. v. d. B. (R. v. d. Borght). 
The second was a continuation of the first, considering the same 
articles and using the same method. The method was an attempt 
to apply a coefficient to the price of different articles, according 
to their relative importance. Twenty-two articles were selected, 
and the quantity consumed of each in Germany in 1868 was ascer- 
tained as closely as possible. The price of each article was multiplied 
for each year by the consumption of 1868 ; and the sum of money 
which would buy the quantity consumed in 1868 of the whole twenty- 
two, or of any limited group, was then arrived at by addition. The 
totals were then arranged on a scale in which one hundred repre- 



394 



QUABTEBLT JOURNAL OF ECONOMICS 



sented the average of the twenty years, 1847 to 1867. The twenty- 
year average or base was presumably asoertamed by the same 
method, thongh it is not expressly so stated. 

The twenty-two articles were arranged in six groups, as follows : — 

I., coffee, ooooa, tea, pepper, rice, sugrar ; II., cotton, silk ; m., indig-o, 
saltpetre, fish-oil, palm oil ; IV., pig iron, zinc, tin, copper, lead ; V., coal ; 
yi., wheat, rye, barley, oats. 

To the final figures are appended, for comparison, those averages 
which would have resulted from a simple arithmetical mean taken 
irrespective of quantity. 



Year. 


General 
Average. 


Average ir- 
respective 
of quantity 


Tears. 


General 
Average. 


Averaga ir- 
respective 
of quanticy- 


1847^ 

1868 

1869 

1870 

18n 

1872 

1873 


100 
118.6 
107.7 
96 
108 
116.6 
120.1 
114.1 


100 
104 
106 
108 
109 
121 
124 
113 


1876 
1876 
1877 
1878 
1879 
1880 


103.2 

102.9 

104.1 

92.1 

90.3 

96.9 


106 
106 
106 
96 
98 
87 


1874 




IO&.8 


106 



TABLE J. 

PRICBS PUBLISHED BY A. 80ETBEBR. 

In Dr. Soetbeer's Materialien (2d ed., 1886), pp. 99-114, are pub- 
lished the annual average prices, &om 1847 to 1885, of each one of 
one hundred and fourteen articles, one hundred of which were com- 
puted by the officials of the Handelutatisches Bureau at Hamburg, 
the prices of the fourteen remaining articles being taken from the 
British Board of Trade returns for exports. The Hamburg figures, 
with averages for five year periods, to 1880, were published by Dr. 
Soetbeer in 1881 in the JahrbUcher /Ur National-Oekanomie (N. F., 
UX, B). The index number of one himdred represents the mean of 
the average prices for the years 1847 to 1850. The average prices for 
each year and the number indicating the percentage which the price 
bears to the index number (1847 to 1850) are given for each article, 
for each of the eight groups, and for the total of the one hundred and 
fourteen articles. The method used is evidently the simple arithmet- 
ical mean : the relative importance of commodities is not considered. 

Dr. Soetbeer points out that systematic official records are kept at 
Hamburg according to actual declarations of values and quantities, 
under many checks to insure accuracy. Since 1881, the Hamburg 



APPENDIX 



895 



officials have carefully reyiaed the whole table, so that it gives the 
most trustworthy wholesale prices of the largest number of articles 
since 1850 at present known to us. 





I. 


U. 


m. 


IV. 


V. 


VI. 


VIL 


vni. 


(i-vni.) 


Tear. 


cuta- 
ral. 




Tropi- 
cal, sc. 


East 
India 
Goods, 


Minei^ 
al. 


Texttle 
Mate- 
rials. 


Diyers. 


Britisli 

Ex- 
ports. 


Total of 

114 
articles. 


1847-18W 


100.00 


100.00 


100.00 


100.00 


100.00 


100.00 


100.00 


100.00 


100.09 


1861 
1802 
18S3 
18M 
1865 


99.02 
110.71 
128.18 
160.49 
168.82 


110.88 
106.68 
114.94 
121.12 
123.64 


90.00 
95.33 
124.78 
112.91 
142.03 


99.94 
99.95 
116.28 
118.17 
121.02 


96.70 
96.76 
100.24 
116.96 
119.10 


104.30 
106.01 
101.43 
111.64 
103.68 


103.08 
06.00 
106.17 
110.44 
109.63 


07.08 
86.06 
100.61 
00.63 
96.27 


100.91 
101.69 
113.«9 
191.95 
194.93 


1861-1866 


129.99 


114.79 


110.43 


110.97 


107.03 


105.20 


106.66 


96.47 


119.99 


1856 
1867 
1868 
1860 
1860 


149.03 
138.11 
119.92 
119.48 
133.76 


127.61 
140.18 
127.02 
130.69 
133.76 


166.96 
169.32 
120.60 
113.40 
120.36 


123.96 
140.32 
112.76 
116.74 
120.28 


116.66 
124.68 
109.04 
108.57 
108.66 


100.02 
112.18 
103.60 
104 60 
108.74 


100.60 
108.01 
99.70 
116.57 
116.83 


98.60 
101.25 
100.91 
105.77 
105.60 


193.97 
130.11 
I13.ft9 
116.34 
190.98 


1866-1860 


181.84 


132.31 


184.72 


122.61 


113.69 


107.12 


108.21 


102.41 


190.91 


1861 
1862 
1863 
1864 
1866 


131.46 
126.80 
120.12 
117.89 
126.48 


124.79 
127.19 
124.12 
129.21 
136.23 


122.08 
113.93 
114.97 
109.41 
114.01 


117.19 
117.28 
116.87 
126.74 
116.11 


102.40 
101.88 
102.92 
104.63 
98.93 


110.86 
124.31 
161.84 
164.26 
117.80 


119.66 
166.99 
161.36 
162.68 
121.06 


106.84 
114.22 
133.46 
146.63 
137.80 


118.10 
199.65 
195.49 
199.98 
199.63 


1861-1886 


124.46 


128.24 


114.13 


118.64 


102.11 


131.83 


144.33 


127.66 


193.59 


1866 
1867 
1868 
1869 
1870 


187.64 
146.38 
141.6© 
132.40 
131.23 


136.64 
132.68 
133.48 
143.26 
139.32 


126.30 
126.44 
120.76 
116.68 
118.67 


117.90 
114.35 
116.76 
122.10 
120.56 


96.64 
93.28 
91.76 
96.33 
99.68 


134.04 
130.81 
127.18 
130.52 
122.87 


111.30 
108.13 
101.26 
98.17 
111.21 


140.36 
133.91 
127.66 
128.16 
122.68 


195.85 
194.44 
191.99 
193.38 
199.87 


1866-1870 


137.74 


136.36 


121.64 


118.32 


96.47 


120.17 


106.90 


130 J{6 


193.57 


1871 
1872 
1873 
1874 
1876 


144.76 
144.17 
146.21 
160.99 
138.16 


144.14 
166.82 
166.72 
167.76 
168.69 


122.99 
126.36 
132.16 
146.02 
131.86 


120.22 
130.y6 
134.32 
136.74 
182.11 


101.85 
121.63 
140.60 
116.70 
107.49 


110.23 
122.70 
110J» 
112.80 
111.47 


117.48 
128.64 
119.14 
112.21 
98.74 


122.64 
130.07 
128.62 
126.06 
12196 


197.03 
l:i5.69 
138.98 
136.90 
199.85 


18n-1876 


144.90 


164.67 


131U50 


130.72 


116.90 


117.17 


114.98 


126.44 


133.99 


1876 
1877 
1S78 
1879 
1880 


141.06 
146.84 
132.60 
132.92 
138.11 


166.79 
162.61 
141.63 
187.60 
147.30 


128.69 
140.66 
134.34 
139.10 
164.66 


129.74 
130.29 
126.61 
123.34 
122.92 


106.27 
98.87 
94.14 
84.28 
88.33 


106.64 
108.33 
102.33 
08.76 
06.72 


101.78 
99.80 
97.24 
90.21 
96.23 


119.28 
114.04 
111.08 
106.98 
106.16 


198.33 
197.76 
196.66 
117.16 
191.89 


1876>1880 


138.12 


146.76 


138.91 


126.38 


94.36 


102.38 


06.70 


111.70 


193.67 


1881 
1882 
1888 

1884 
1886 


187.60 
138.45 
143.33 
123.86 
110.76 


161.21 
166.17 
166.40 
160.26 
140.46 


146US7 
139.23 
142.38 
120.16 
123.78 


122.60 
122.47 
120.17 
117.90 
116.88 


84.87 
86.09 
82.03 
78.60 
74.23 


00.20 
06.10 
06.08 
07.02 
06.80 


04.89 
09.10 
96.38 
84.82 
81416 


103.08 
104.72 
104.72 
103.36 
100.48 


19167 
199*14 
199*94 
114.95 
168.79 


1881.1886 


130.77 


160.66 


134.41 


110.91 


81.66 


06.66 


91.11 


103.28 


117.68 



896 



QUABTERLY JOURNAL OF ECONOMICS 



The articles used in the Hamburg tables are : 1., wheat, flour, rye, rye- 
meal, oats, barley, malt, buckwheat, peas, white beans, potatoes, hops, clover- 
seed, rape-seed, rape-seed oil, linseed oil, oil-cake, raw sugar, refined sng^ar, 
spirits ; II., beef, veal, mutton, pork, milk, butter, cheese, tallow, lard, hides, 
oalf-skins, leather, horse-hair, bristles, bed-feathers, bones, buffalo-homa, 
glue, eggs, herring, dried fish, tnun-oil; III., raisins, currants, almondm 
dried prunes, olive oil, wine (French), champagne; IV., coffee, cocoa, tea, 
pepper, allspice, cassia-bark, rice, sago, arrack, mm, tobacco, indigo, cochi- 
neal, logwood, rosewood, mahogany, rattan, palm oil, ivory; Y., coal, iron 
ore, bar iron, steel, lead, zinc, tin, copper, quicknlver, sulphur, saltpetze 
(Chili), salt, lime, cement ; VI.,* cotton, wool, flax, hemp, silk, cordage, rags ; 
Vil., guano, gum elastic, gutta-percha, resin, pearl ash, pitch, potash, soda, 
stearine candles, tar, wax; VIII., cotton yam, plain piece-goods, printed 
cotton piece-goods, cotton stockings and socks, sewing thread, common glass 
bottles, linen yam, plain linen, sail-cloth, woollen and worsted yam, woollen 
cloth, flannels, worsteds, carpets. 



III. 

PRICES IN FRANCE. 

TABLE K. 

PRICES COMPILED BV R. H. I. PALGRAYE. 

In the Third Report of the Royal Commission on the Depression of 
Trade and Industry^ Appendix, pp. 354-861, Mr. R. H. Inglis Palgrave 
has collected, from information given him by M. L^on Say and M. 
de Foville, and from the figures of the Commission Permanente des 
VaUurs de Dottane, two tables of French prices for the period from 







Table 28 




Table 29 


Year. 


Table 28. 


redaced to 
scale of 100. 


Table 29. 


redaced to 
scale of 100. 


1865 


2,267 


103 


2,331 


106 


1866 


2,314 


105 


2,380 


106 


1867 


2,207 


loO 


2,144 


97 


1868 


2,126 


97 


2,110 


96 


1869 


2,087 


95 


2,045 


99 




*J,i>00 


too 


9,dOO 


too 


1870 


2,137 


97 


2,000 


91 


1871 


2,283 


104 


2,260 


102 


1872 


2,434 


111 


2,310 


106 


1873 


2,423 


110 


2,300 


106 


1874 


2,223 


101 


2,125 


97 


1875 


2,243 


102 


2,085 


96 


1876 


2,196 


100 


2,090 


96 


1877 


2,241 


102 


2,107 


96 


1878 


1,960 


89 


2,010 


91 


1879 


1,898 


86 


1,916 


87 


1880 


1,941 


88 


1,937 


88 


1881 


1,880 


85 


1,900 


86 


1882 


1,845 


84 


1,855 


84 


1883 


1,807 


82 


1,756 


80 


1884 


1,679 


76 







APPENDIX 397 

1865 to 1884 for twenty-two articles. The index number of twenty- 
two hundred (or one hundred) is taken to represent the average prices 
of the years 1865-69. The articles chosen and the method of com- 
puting the index numbers in Table 28 are as nearly as possible like 
those of the Economist. Table 29, however, introduces a method of 
ascertaining the relative importance of articles by finding the value 
of the actual imports into France of each commodity, as compared 
with the total value of the imports of all the twenty-two articles ; e,g,f 
in 1871, the importance of wheat was expressed by 380, and of butter 
by 6, out of the total 2200 ; but, in 1877, wheat was expressed by 166, 
and butter, 11. The final results of both methods are here given in 
parallel columns. In Table 28, the articles are : coffee, sugar, wheat, 
beef, butter, rice, tobacco, oil-seed, olive oil, tallow, raw silk, silk 
stufEs, gloves, raw cotton, raw wool, woollens, hides, coal, iron ore, 
copper ore, lead ore, and zinc. 



IV. 

PRICES INT THE UNITED STATES. 

TABLE L. 

PRICES COMPILED BY H. C. BURCHARD. 

Mr. H. C. Burchard, in his report as Director of the Mint for 
1881, gave the results of calculations of average prices in New York 
for the fifty-six years from 1825 to 1880. The figures are printed in 
the Report on the Finances, 1881, pp. 812-321. They are continued 
for the year 1881 in the Report on the Finances, 1882, pp. 252-254 ; 
for the year 1882 in ibid,, 1883, pp. 316-318; and for the years 1883 
and 1884 in tbe Report of the Director of the Mint on the Production 
of the Precious Metals, 1884, pp. 499, 500. Mr. Burchard's first table, 
for the years 1825-80, is reprinted without change in the Quarterly 
Reports of the Bureau of Statistics, 1883-84, No. 3, pp. 328-387, and is 
again reprinted, still without change, in tbe Quarterly Reports, etc., 
1885-86, No. 3, pp. 556-565. Mr. Burchard wrote in 1881: "The 
prices quoted were obtained for the years 1825 to 1874, inclusive, 
from the tables of their average prices in New York, found in the 
Finance Reports of 1863, 1873, and 1874. [See Finance Report, 1863, 
pp. 284-861 ; ibid,, 1873, pp. 502-541; ibid., 1874, pp. 557-561.] For 
the succeeding six years, they were compiled in this office from the 
published semi- weekly quotations in the New York Shipping and 
Commercial List, from which paper, it is understood, the quotations 
were taken in compiling the tables found in the Finance Reports,** 



398 



QUABTEBLT JOURNAL OF ECONOMICS 



An examinAtion of the Fmamee Report tables indicates that they were 
not compiled with great care. The price of an article will nin aloni^ 
without change from month to mcmth ; then, suddenly, it will rise or 
fall sharply. The prices of articles that normally would fluctomte 
together (pig and bar iron, butter and cheese) i^ow a very loooe 
ccHrrespondence. Moreover, the same articles do not i^pear from 
year to year. An article will be quoted for a number of years, will 
then disappear, and later, perhaps, will reappear. Thus, flax does not 
appear till 1864, is quoted till 1878, and drops out thereafter. Again, 
Mr. Burchard*8 tables do not use all the Pmamce Repori prices, but 
choose from among them. His averages, as finally given, are ob- 
tained from the prices of eighty-two articles in 1^5, eighty-one in 
1862, sixty-eight in 1864, sixty-five in 1880, and ninety in 1884. Pork 
is quoted in ten forms for 1884, in only three forms in 1880 ; and it 
does not appear whether each form of pork was used as an inde- 
pendent factor in calculating the final result, or whe^er all were 
averaged in order to give one figure for pork. For the years 1862-78, 
the prices are reduced to a gold basis ; but it is not indicated in what 
manner this reduction was effected. 

Notwithstanding these serious imperfections, we reprint Mr. Bur- 
chard's figures for the years 1850-84, since they are the only con- 
tinuous figures of average prices in the United States. They are the 
arithmetical means for each year of the prices of the varying number 
of commodities taken for that year. The index number 100 in the 
first column indicates the mean of all the prices for the fifty-six years, 
1825-80: — 



Year. 


Basis of 

1825-1860. 


Redaced to 
baAia of 
1845-1850. 


Tear. 


Basis of 
182&-1850. 


Reduced to 
basis of 
1845-1850. 


18S0 


88.9 


102.6 


1868 


107.6 


124.2 


1851 


89.3 


103.1 


1869 


108.2 


liM-9 


1852 


1)1.9 


106.1 


1870 


118.1 


136.5 


1853 


99.4 


114.8 


1871 


108.1 


124.8 


1854 


107.0 


123.6 


1872 


112.6 


130.0 


1865 


lll.l 


128.8 


1873 


107.6 


12L1 


1856 


112.2 


129.6 


1874 


106.8 


123.3 


1867 


119.8 


138.3 


1876 


98.3 


113.5 


1858 


99.7 


115.1 


1876 


94.2 


108.9 


1850 


100.6 


116.1 


1877 


98.0 


118.2 


1860 


100.3 


115.8 


1878 


88.0 


101.6 


1881 


98.0 


113.1 


1879 


94.7 


109.1 


1862 


111.6 


128.8 


1880 


90.3 


104.3 


1863 


119.4 


137.8 


1881 


102.7 


118.4 


1864 


110.1 


127.0 


1882 


103.8 


119.1 


1866 


12S.0 


142.0 


1883 


100.2 


115.6 


1866 


119.1 


137.6 


1884 


91.2 


105.3 


1867 


113.0 


130.5 









APPENDIX 399 

V. 

ARTICLES WHICH SHOW NO TENDENCY TO FALL IN PRICE. 

TABLE IV. 

(OIYEN IN ]nJLBLA.LL*8 <* HI0TOBT OF PBIOSS,** PP. 179-82.) 
PRICES OF BBITI8H IMPORTS. 



Articles. 


186^^. 


1861-70. 


1871-80. 


1881-84. 


Bacon, cwt. 8. 

Barley, bn d. 

Beef.cwt. s. 

Brandy, gal d. 

Batter, cwt. . . . . s. 
Cheeee,cwt. . . . . s. 

Cigars, lb s. 

Cocoa, cwt. 8. 

Currants, cwt. . . . . s. 

Q^i?pj£' *. Id. 

Hops, cwt. 8. 

Lard, cwt. 8. 

Oats, bo. d. 

Oxen, each £ 

Pepper, cwt. ... . s. 
Potatoes, cwt. . . . . d. 
Raisins, cwt. ... . s. 
Sheep, each .... 8. 


61 
87 
40 

112 
84 
51 
11 
47 
36 
82 
20 

107 
66 
35 
16 
46 
42 
87 
41 


49 
43 
38 
80 
104 
66 
11 
65 
21 
88 
26 
98 
66 
40 
18 
87 
54 
30 
39 


45 
60 
44 

95 
110 
66 
18 
72 
27 
114 
25 
94 
47 
46 
21 
48 
66 
35 
45 


60 
44 
51 

108 

103 
54 
12 
74 
27 

102 
24 

144 
51 
43 
22 
66 
76 
36 
46 



PRICES OF BRITISH EXPORTS. 



Articles. 



Beer.bbl s. 

Bottles, cwt. . . . . d. 
Batter, cwt. ... . s. 
Cheese, cwt. . . . . s. 

Cloth, yd. d. 

FishTbbl 8. 

Horses, each . . . . £ 
Leather, cwt. . . . . s. 

Silks, yd d. 

Spirits, gal d. 



1854-60. 



69 
130 
100 
81 
27 
26 
58 
176 
38 
45 



1861-70. 



73 
120 
97 
83 
36 
27 
51 
187 
45 
80 



1871-80. 



83 
126 
124 
83 
37 
29 
64 
164 
40 
49 



1881-84. 



80 
117 
136 
83 
37 
30 
60 
178 
40 
70 



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The Ouarterly Journal of Economii 

Is established as an aid to investigators and students. It mrill 5 
a medium of publication for studies in 

Economic History, Criticism^ and Speculation^ 

and for the discussion of the important 

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THE QUARTERLY JOURNAL OP ECONOMICS, Cambridi^e, Mass. 

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Bubsoription Frioei Two Dollars Per Annum ; Single Copies, Fifty Oents. 
Contents of No. r, October 15, 1886. 

I. THE REACTION OP POLITICAL ECONOMY, - . . . Chiurles F. Ouch 
11. PRIVATE MONOPOLIES AND PUBLIC RIGHTS, - • - Arthur T. Had i 

III. SILVER BEFORE CONGRESS IN x886 S. Dana Hortj 

NOTES AND MEMORANDA. 

Silver as a Re^^ator of Prices. 

The Arithmetic, Geometric, and Harmooic Means. 

Legislatloa for Labor Arbitration, 

CORRESPONDENCE: LeUer from Paris, Arthur Macri 

RECENT PUBLICATIONS UPON ECONOMICS. 

Appendix. 

WAGNER ON THE PRESENT STATE OP POLITICAL ECONOMY. 
PRICES IN IRELAND. ^.—i...— i.« 

Contents of No. 2, January 15, 1887. 

I. AN HISTORICAL SKETCH OF THE KNIGHTS OF LABOR. CarroU D. Wriirhr 
II. THE DISPOSITION OF OUR PUBLIC LANDS, - - - Albert Bushaell Hjr 

III. THE SOUTH-WESTERN STRIKE OF x886, F. W. Tauss s 

NOTES AND MEMORANDA. 

Marshall's Theory of Value and Distribution. 
Some Objections to Profit-sharing. 
RECENT PUBLICATIONS UPON ECONOMICS. 

Appendix. 

TABLES RELATING TO THE PUBLIC LANDS. 
THE PROPERTY TAX OF THE CANTON DE VAUD. 



Contents op No. 3, April 15, 1887. 

I. THE SOURCE OF BUSINESS PROFITS, Frsncii A. Walker 

II. AN HISTORICAL STUDY OF LAW'S SYSTEM, - Andrew McFtrlsod Davii 

III. GOLD AND PRICES SINCE 1873. J. Laurence Lsaghlin 

NOTES AND MEMORANDA. 

Notes by Professor Marshall. 
General Overproduction. 
The Theory of Profit-sharing. 
English Labor Statistics. 
RECENT PUBLICATIONS UPON ECONOMICS. 

Appendix, 

Prices in Great Britain, Germany, France, and^^^e United Statef a.t H., UI., IV,); Artide* 

which show no Tendency to fall in Price (V.). 
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ECONOMICS 



JULY, 1887 ' 



DEPOSITS AS CURRENCY. 

Ik the discussions upon the various phases of the cur- 
rency question during the last twenty years, the popular 
dread of contraction and its consequences has seldom 
been appealed to in vain. Congress has been a good 
index of public opinion in this respect, and in Congress 
there has steadily been an element which seemed to have 
grasped the idea of a connection between contraction and 
fsdling prices, as the one and sufiQcient key to the practi- 
cal questions which were to be settled. To this fact were 
due the weak legislation of 1874, to go back no further, 
and the necessity in 1875 of so framing the Resumption 
Act as to leave its meaning open to opposite constructions 
and its operation uncertain, — a necessity which Mr. Sher- 
man, in carrying the bill through the Senate, did not seek 
to disguise. Nothing else than a deep conviction in Con- 
gress that ^^ the people would not stand contraction '' can 
explain the fact that the act of May 31, 1878, ''to forbid 
the further retirement of legal tender notes," was carried 



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402 QUABTEBLT JOURNAL OF ECONOMICS 

through the House of Representatives under a suspension 
of the rules and without a word of discussion, the decision 
of the question as to the meaning of resumption and the 
perpetuity of the legal tender issues being treated as of 
less consequence than the appointment of a door-keeper. 
And, in the discussions of the national banking system, 
the same dread of contraction, or of a supposed popular 
fear of contraction, constantly appears, and shapes the 
expedients offered by the opponents, and sometimes by 
the friends, of the present system. 

This, however, brings forward in a convenient form the 
question. What is the currency of which the contraction 
[ is thus dreaded? In the resumption discussions, it was 
assumed that, apart from specie, the legal tender and 
bank-notes make up the currency; the amount of each 
kind outstanding was anxiously computed, and the in- 
crease or diminution of the aggregate noted as a decisive 
fact. And so, too, in later discussions, the sinking of 
bank-note issues, while the legal tenders are constant in 
amount, is often treated as a portent, the lesson of which 
is either the remodelling and renewing of the system or 
the substitution of government paper for bank-notes, as 
may be preferred. Without attempting a formal state- 
ment of the constituents of the currency, the writer 
wishes to recall the fact that there is a kind of bank cir- 
culation more important than bank-notes, and that the 
theorems of currency cannot be correctly applied if this is 
ignored. 

The ease with which we ignore deposits as a part of the 
currency seems the more remarkable, when we consider 
that few men in business fail to recognize the true mean- 
ing of this form of bank liability ; that it is a circulating 
medium in as true a sense and in the same sense as the 
bank-note, and that, like the bank-note, it is created by 
the bank and for the same purposes. McLeod's remark, 
that " every bank is a bank of issue," may seem a hard 



DEPOSITS AS CURRENCY 408 

saying : still, every man of affairs would be found apply- 
ing it in practice and recognizing the essential truth con- 
tained in it in a tolerably distinct manner ; and probably 
one reason for the moderate interest which practical men • 
are apt to take in discussions of currency is, that such 
discussions so commonly deal with what experience shows 
to be only a part of the essential elements of any actual 
question. 

It is interesting to observe that, in the early efforts to 
deal with the subject of credit currency in this country, 
the greatest of the financiers on each side recognized 
plainly and constantly the true significance of the bank 
deposits. Hamilton at the start made a statement which 
could hardly be improved upon: — 

Every loan which a bank makes is, in its first shape, a credit given 
to the borrower in its booksi the amonnt of which it stands ready to 
pay, either in its own notes or in gold or silver, at his option. But, 
in a great number of cases, no actual payment is made in either. 
The borrower frequently, by a check or order, transfers his credit to 
some other person, to whom he has a payment to make ; who, in his 
turn, is as often content with a similar credit, because he is satisfied 
that he can, whenever he pleases, either convert it into cash or pass 
it to some other hand, as an equivalent for it. And in this manner 
the credit keeps circulating, performing, in every stage, the office of 
money, till it is extinguished by a discount with some person who 
has a payment to make to the buik to an equal or greater amount.* 

Gallatin was quite as explicit as Hamilton, stating his 
proposition more than once,t with a wide interval of 
time, substantially as follows: — 

The bank-notes and the deposits rest precisely on the same basis. 
. . . We can in no respect whatever perceive the slightest difference 
between the two ; and we cannot, therefore, but consider the aggre- 

* Report on a National Bank (1790), vol. ill., P* 128, of Lodge's edition 
of Hamilton's Works. 

tSee his report to the Senate (March 3, 1809), in American State Papers^ 
finance, ii., 301 ; and his essay on the Currency and Banking System, Writ- 
ings, iii., 267, 268. 



404 QUABTERLT JOUBNAL OF ECONOMICS 

g»ta ftmonnt of credits ptkjMe on demand, standing on the books 
of the seTeral banks, as being part of the currency of the United 
States. This, it appears to us, embraces not only bank-notes, but all 
demands upon banks payable at sight, and including their drafts and 
acceptances. 

These citations, embodying a principle which perha{)6 
stands in little need of formal exposition, show plainly 
enough how far much of our discussion and even of our 
legislation has drifted from the position taken at the out- 
set. The current of our legislation for years has not only 
treated note-issue as the subject of chief interest, but has 
often proceeded on the theory that nothing else need be 
considered ; and the debate, in Congress and out, has run 
chiefly upon the greenback and the bank-note. This ab- 
sorption of all interest by the inferior constituent of our 
credit currency is easily explained. Besides the apparent 
ease of legislating upon note-issues and the obvious diffi- 
culty of legislation upon deposits, the notes were, in the 
earlier decades of our history, the more important of 
the two. The comparative sparseness of population and 
the imperfect development of the banking habit, in a new 
and more slowly advancing country and in a less advanced 
age than the present, created an early preference for the 
currency which passes from hand to hand, and discour- 
aged the use of that which implies a resort to the bank. 
Even in the abnormal years 1809 and 1811, when all 
business was stagnant as the result of the embargo and 
subsequent non-intercourse, the note-circulation of the 
Bank of the United States was little below its debt to 
individual depositors, as shown by the only statements of 
that institution ever given to Congress; and, in the ac- 
counts even of the best developed State banks of that 
date, the notes have clearly the first place. The figures 
collected by Gallatin for 1820 and 1829 show the same 
preponderance of note-circulation. The returns collected 
by the Treasury for many years, under the resolution of 



DEPOSITS AS CUBRENCr 405 

July, 1832, show that it was not until 1855 that the 
deposits of the banks taken in the aggregate rose above 
their circulation. Even under such special circumstances 
as those of Massachusetts, the notes continued to be the 
more important element until 1858, with the exception of 
an irregular period from 1806 to 1823, and two or three 
scattered years of exceptional conditions.* 

And not only were the notes practically the more 
important during these years, but events riveted the at- 
tention of the public upon them. The suspension of 
specie payments at the close of the second war with 
Great Britain, the history of the second Bank of the 
United States and the struggle for its recharter, and the 
hard-money movement which finally led to the indepen- 
dent treasury system, all tended to keep the notes in the 
foreground, and to give the impression that banking is 
synonymous with note-issue, as the old acts of Parliament 
treated it. The long-continued suspension of 1861 and 
the later controversies, turning primarily on the ques- 
tions raised by the greenbacks, but involving the bank- 
notes, have easily and naturally followed the same line. 

Our experience resembles that of other countries in this 
respect. Even in England, where modern deposit bank- 
ing had its earliest development and has reached its high- 
est point, and where for more than forty years legislation 
has set the note-circulation apart in such a way as to 
bring into the strongest possible relief the currency func- 
tion of deposits, there is the same trouble in realizing 
a patent fact, and from the same cause, if we may trust 
Bagehot : — 

Probably up to 1830 in England, or thereabouts, the main profit of 
banks was derived from the circulation; and for many years after 
that the deposits were treated as very minor matters, and the whole 
of Bo-called banking discussion turned on questions of circulation. 
We are still living in the dibris of that controversy ; for, as I have 

•See Gallatm, Writinffs, iii., pp. 291, 296 ; and Report qf the Comptroller qf 
the Currency for 1876, pp. 38-46, and Appendix. 



406 QUARTERLY JOURNAL OF ECONOMICS 

00 often said, people can hardly think of the fltmctoie of Lombard 
Street except with raferenoe to the paper currency and to the Act of 
1844, which regulates it now.* 

Even a writer usually so much in sympathy with the 
practical movement of the times as Jevons, in his Money 
and the Meehaniem of Exchange^ shows a singular inability 
to free himself from the old notion that money and bank- 
I notes are nearly all that need be dealt with in treating of 

i currency. The real importance, however, of the neg- 

1 lected element is shown by the published returns. At the 

I close of 1886, the total note-issue of the United Kingdom, 

' including that of the Banks of England and Ireland and 

of all private banks and joint stock banks, was slightly 
over £60,000,000.t At nearly the same date, the deposit 
accounts of the joint stock banks of the kingdom, nearly 
all shown by published accounts, amounted to £446,800,- 
000, and the " other deposits " of the Bank of England to 
£29,000,000: so that, with allowance for private banks 
and others for which estimates only can be had, it is prob- 
able that there was an aggregate of £660,000,000 to 
£570,000,000.^ The chief expansible element of the cur- 
rency, on which the growth of English domestic trade and 
the adjustment of a constantly swelling mass of transac- 
tions have mainly depended, has been this vast system of 
transferable credits, which still waits for its due share of 
attention in economic discussion. 

England is still cumbered by the dibrii of the old con- 
troversies over note-issue, but the continental countries 
are still in the heat of controversy itself. The question 
as to the close monopoly held by the Bank of France and 
the monopoly held by groups of banks in Germany and 
Italy, together with the imperfect development of what 
we have called the banking habit, has curiously nartowed 

"^Lombard Street, p. 85. 

i Journal qf Statistical Society, March, 1887, pp. 251, 252. 

I See Economist, May 21, 1887. 



DEPOSITS AS CURRENCY 407 

all current discussion as to ^' banks of issue/' and has 
made questions of banking seem to turn upon the kind of 
evidence by which the existence of similar debts may hap- 
pen to be certified. The whole continent is, in fact, in 
much the same stage as England and the United States 
before 1830, as regards practical methods. The " account 
current " holds its place in the statements of the conti- 
nental banks, but the place is not an important one. The 
check has helped to introduce the clearing-house; but 
progress is slow, and the scale of operations — while it 
shows a gain of convenience for the banks concerned — 
does not indicate the use of the machinery as a vital 
part of the circulating system of a country. Continental 
writers, therefore, have naturally done even less than 
English towards setting the deposit and check system in 
its true light.* 

In maldng the inquiry as to the share which deposits 
have in the active circulation of the United States, we 
happily have a good source of information in the reports 
of the Comptroller of the Currency. These reports give, 
with precision, five times a year the circulation and de- 
posits of all the national banks ; and from these state- 
ments a sufficiently fair average for any year or any six 
months may be struck. The tax formerly levied by the 
United States upon deposits also brought into the Treas- 
ury returns from all banks and trust companies doing 
business under the laws of the several States and from 
private bankers, which may fairly be taken as accurate 
down to November, 1882, when the repeal of the tax put 

• Conitois, who recognizes with tolerable distinctness the similarity be- 
tween the issue of notes and the opening of a deposit aooountf makes the 
naive remark : " On a cr^ on concurrent an billet de banqne, il est vrai, mais 
on concurrent bien faible; quel stimulant Ik d^poser des esp^oes en oompte 
courant Ik la Banque, si on ne yous sert aucun int^rdt ? " Histoire des Banquet 
en France^ p. 241. Wagner, in his article in Schonberg's Handbuch on Credit 
und Bankwesen, has some important remarks on the origin of *' book-credit- 
deposits *' and their use as a real substitute for notes. See §§ 54-57. Enies, in 
Geld und Credit^ fails to reach any dear conception of the function of deposits. 



408 



QUARTERLY JOURNAL OF ECONOMICS 



an end to the series. Since that date, moreover, the sue* 
cessive comptrollers have obtained from official sources 
such information as could be had respecting State banks 
and trust companies; and this, although imperfect and not 
given for uniform dates, is an approximation to the actual 
movement down to the present time. Unfortunately, 
there are no longer the means of determining the amount 
of the deposits with private banks and bankers. Taking 
then, for comparison, the six months' averages which the 
comptroller's reports give for the banks other than na- 
tional, the figures from these sources may be grouped as 
follows : — 



ATer»c« for 6 months ending 
Nofember 80, 187S. 



MajSt, 1878 

May 81, 1877 

lUj81, 1878 

1QJ81, 1878 

lUj81, 1880 

May 81, 1881 

May 31, 1882 

Korembar 80, 1888 

For year 1888 

1884. 

1885. 

1886. 

Amonnt on March 8, 1887 . 



NOTES. 



Nat. 

Banki 



818 
808 
883 
801 
804 
881 
809 
881 
818 
8tl 
298 
271 
842 
186 



DEPosrrs. 



Kat. 
Banks 



675 

617 

640 

611 

614 

789 

969 

1,047 

1,086 

1.064 

1,010 

1,071 

1,146 

1,296 



State. Trust 
Banks Cos. 



487 
480 

4n 



857 
319 
886 
4S8 
490 



885 
825 
344 
343 



166 
189 
188 
214 



PriT, 
B*k*r8 



184 
14) 
188 
842 
896 
289 

? 

? 

? 

? 



M68 

1411 

1,086 
1,011 
1,801 
1,617 
1,796 
1,874 
[1661] 
[1824] 
[1603] 
[1708] 



Of the reported deposits of trust companies, only a 
small proportion represent the trusts held by these com- 
panies ; but by far the greater part belongs to the bank- 
ing business, which is their chief function. And, although 
the action of parts of their deposit accounts may be slug- 



DEPOSITS AS CUBBENCT 409 

gish from their methods of dealing with customers, — as 
is also true in some degree of any bank, national or State, 
— it seems not unfair on the whole to let these deposits 
stand on the same footing as those of the ordinary banks, 
especially in view of the probability that the figures are 
within rather than beyond the truth. Of the deposits of 
private bankers, also probably not overstated before 1883, 
it can only be said that the amounts, if they could be 
known, would probably show that the increase observed 
down to that date has continued since. 

There can be little doubt, then, that in 1886 the aggre- 
gate deposits of banks and bankers in the United States, 
savings banks being of course excluded, were on the 
average above two thousand millions ; and there may be 
said to be a high degree of probability that at the present 
time the aggregate stands at nearly double the amount 
which was returned for 1875. The increase has not been 
without interruption. The total has fallen in periods of 
depression, and it has risen with regaining confidence. 
Indeed, the changes in the business situation of the coun- 
try, acting through the demands of persons dealing with 
the banks, of necessity leave at tins point a permanent 
record of their passage. But the fact which it is chiefly 
desired to emphasize here is the complete elasticity of tins 
section of our currency. It adapts itself to the demand 
of the moment without visible effort and either by ex- 
pansion or contraction, as the case may be ; and it does 
this quite irrespective of legislative purpose or guidance. 
From the figures, indeed, the conclusion is irresistible 
that, if for any reason the creation of deposit currency 
through the agency of the national banks is hindered or 
limited, it will make its growth by means of State banks ; 
and, if not by these, then by a system of private bank- 
ing, which no legislation can touch, until the government 
shall assume the power of declaring whether A may owe 
B or not. The growth of this kind of credit may be 



410 QUABTEBLT JOURNAL OF ECONOMICS 

guided and it may be made more or less sound according 
to the wisdom of legislation. The stability of the stand- 
ard to which its value relates is wholly within legislative 
control, and the continmty of the test of its solvency by 
reference to that standard is within the scope of legisla- 
tive influence. But, whether the legislation be good or 
bad, here is the adjustable part of our system of credit 
currency, and the part of it which will continue to adjust 
itself to the scale of the transactions to which current 
business naturally gives rise. 

And, in view of the extraordinary growth of this kind 
of credit currency, the mere question of the amount of na- 
tional bank-^otes in circulation sinks into insignificance, 
and with it the question whether their place must be 
made good by other descriptions of paper, as, for example, 
by greenbacks. There is a real question as to the con- 
venience of using coin, in place of a part of the paper 
which the community uses in its small transactions ; there 
is a question as to the wisdom of depriving a great system 
of banks of the ability to supply whichever form of credit 
may be required by the public ; and there is a grave ques- 
tion as to having any larger part of our credit currency, 
or any part of it, subject to control as regards its amount, 
by any legislative body whatever. But as regards the 
mere question of contraction, still sometimes brought for- 
ward with respect to the paper currency, the grounds for 
it have ceased to exist. For, besides the fact that since 
resumption specie has come in and must continue to come, 
through an ever open door, to make good any deficiency 
of circulating medium, the growth of deposits has covered 
many times over all loss in the amount of paper circula- 
tion. Indeed, we may go farther, and say that if the 
United States government were to pay off every legal 
tender note, and if every bank-note were to be with- 
drawn, these changes would produce no real contraction 
of the currency. With specie thus brought into common 



DEPOSITS AS CUBRENCY 411 

use for smaller and every-day transactions, we should, it 
is true, have a currency far less convenient for its minor 
uses, and we should no doubt see the use of the deposit 
arid check system thus carried prematurely into classes of 
transactions and into sections of country where the note 
now meets a popular demand ; but, as regards the mass of 
exchanges from which the business condition of the coun- 
try at any given time takes its tone, we should find them 
carried on as now, by a creation of bank credits on what- 
ever scale the needs of the time might require. In fact, 
so soon as specie payments were firmly established and the 
value of credit currency was settled, by its assured con- 
version at pleasiire into a solid medium, contraction ceased 
to be any proper object of dread. 

Upon this point sufficient evidence is presented by the 
operations of the national banks since the resumption of 
specie payment. Of these operations, the great results 
are clearly shown in the diagram issued with the comp- 
troller's report for 1886. Inspection of this diagram 
shows an enormous expansion of the general scale of 
transactions by the banks since 1879. This expansion has 
come only in a moderate degree from the application of 
new banking capital; it has come in spite of .the sinking 
of the line which describes the changes in circulation, and 
chiefly from the sharp rise of the line of deposits during 
the flush period from April, 1879, to December, 1881, and 
again from the fall of 1884 to the present time. The 
elastic power of the deposit currency, and the certainty 
with which it fills the void left by tibe disappearance of 
paper, could not be illustrated better than by the soaring 
of the red line as the black one sinks, upon Mr. Tren- 
holm's chart. 

The legitimate inference from these considerations is 
not, however, that the disappearance of the bank-note, or 
the substitution of government paper for it, is to be 



412 QUABTEBLT JOURNAL OF ECONOMICS 

viewed with indifference. The business of a country in 
which the banking habit is firmly seated, will, it is true, 
find a medium of exchange, and in the amount needed ; 
but it is of great consequence that the medium used 
should be made up of the kinds most convenient for the 
use of the community, and divided between those kinds 
in the proportions most convenient. This question of 
proportion is one which no combination of counsellors, 
public or private, can determine. No legislature and no 
conclave of bankers can say that the people of the United 
States require any given amount of notes for the manage- 
ment of their exchanges. The amount which is sufficient 
this year may, and almost certainly will, be either insuffi- 
cient or in excess the next ; and it is partly from a sense 
of the absolute inability of any human foresight to deal 
with this problem, that we owe the multitude of schemes 
proposed in years past " to adapt the amount of the [paper] 
currency to the needs of the country." * 

Left to itself, the country settles this problem of pro- 
portion in a natural way, by the demand which each indi- 
vidual using a credit currency of any kind will make for 
notes or for a deposit account, as his special conditions 
may require. But, in order that this natural process 
should go on easily and without inconvenience to the 
community, it is requisite that the banks or bankers with 
whom individuals deal when obtaining loans or receiving 
payments should have the ability to respond to demand 
in either form; in other words, that the creditor of the 
bank or banker should be able to receive the evidence 
of his claim in the one form, if he expects to use it in 
large operations or in a closely settled community, or in 

*It is true that there is a party who beliere that the issue of notes for the 
oountry should be fixed and ^^haye no elastic power." See Mr. Bnokner^s 
speech in the House on the extension of bank charten, April 17, 18S2. And 
a Secretary of the Treasury once committed himself to the astonishing propo- 
sition, that the issue of baok-notes ought to be fixed in amount and the issue 
of legal tenders adjustable by che Treasury, according to its conception of the 
needs of the time. See Finance Report, 1872, p. xx. 



DEPOSITS AS CURBENCY 413 

the other, if in small operations or where hand-to-hand 
dealings are the rule, and that the lender should find his 
profit equally in responding to either demand. It is only 
by being allowed to take one or the other form, as occa- 
sion requires, that a given mass of bank credit can per- 
form its functions with the maximum of public advantage. 
There may be sound reasons of a different order for not 
giving the power of issue in both forms to every company 
or individual carrying on the business of banking; in 
other words, the ideal of a perfectly free system of bank- 
ing is no doubt beyond reach ; — but that, for the greatest 
advantage of the public, the issue of notes by banks 
should be widely enough diffused to present in every 
considerable district which uses banking facilities at all 
the easy choice between the two methods of using credit, 
seems to be beyond dispute. This choice is given only 
when the power of issue is substantially in the same hands 
which control the loans and the business of banking gen- 
erally. It is, in fact, one of the great services rendered 
by the national banking system that, for a most critical 
quarter century, it carried note-issue and deposit banking 
side by side throughout the greater part of the country, 
under the management of a class of remarkably sound 
institutions, giving to the community many of the bene- 
fits of free banking, with the minimum of its risks. As 
a substitute for this system, the issue of notes by the 
Treasury is as little to the purpose as the striking of 
coins by the mint ; nor is there any machinery by which 
the operations of the Treasury can be made to perform 
the desired office. Happily, those operations are quite 
distinct from the commercial movement of the country, 
and are unsuited by their nature for any closer connec- 
tion with it, even if such connection were expedient. 

To the firm establishment of the right of note-issue as a 
practical alternative given to the banking system of the 
country, it is doubtful whether any serious opposition 



414 QUABTEBLT JOURNAL OF ECONOMICS 

would have arisen, had there not been an impression tliat 
, in some way this right is the opportunity, either for an 
exorbitant profit or, at any rate, for a profit which should 
be reaped by the government. As regards the amount 
of the profit coming from circulation, no real answer lias 
ever been made to the computations by which the late 
comptroller repeatedly demonstrated in his reports the 
trifling margin of gain left by the use of credit in ttds 
form. Whatever may have been the profits of banks from 
this source fifteen years ago, with the rates of interest 
then prevailing, there is no doubt as to the comparative 
unimportance to-day of using their credit in a form which 
requireB as a preliminary the investment of capital at the 
rate of two and a half per cent. Indeed, the figures show 
that, by jealously maintaining the primitive forms of the 
national system under altered conditions, note-circulation 
has long been systematically discouraged and its essential 
advantages for the public sacrificed. 

To every practical demonstration of the narrow margin 
of profit, however, the common reply is, after all, a more 
or less open appeal to the theory of a supposed double 
source of profit under a secured issue, — a theory which 
has had a strong hold on the public, and has not always 
been met with complete perception of its hoUowness, even 
by the friends of the national system. For the present 
purpose, it is enough to point out that the source of profit 
for any bank is the investments in securities or loans 
which it can hold, by the use of its capital together with 
its credit in any form ; that its profit is not increased by 
pledging any part of the investment to secure any class 
of liabilities ; and that, therefore, the sources of profit open 
to national banks issuing notes are of precisely the same 
order as those enjoyed by State banks and private bank- 
ers. The national bank has the great advantage of a 
choice between methods of using its credit; but, how- 
ever its choice is made, its investment is necessarily 



DEPOSITS AS CUBBENCT 415 

measured by its capital plv^ its credit, which is also the 
measure for its non-issiiing neighbors. The confinement | 
of the national banks -therefore to the use of credit in one 
form, instead of giving them an alternative between two, 
would not cut off a double profit now enjoyed, but would 
merely require that the credit by which a part of their 
profit is earned should be evidenced by book account, and 
not by demand note, or vice vena. In short, the profits 
of the banks are increased by the right of issue only so 
far as that right makes it possible to extend the credit of 
the banks, and so to increase their holding of investments, 
beyond the point which they could reach by the use of 
the deposit system alone. But the swift extension of 
deposits already pointed out makes it extremely doubtful 
whether the extinction of any serious effect on the total . 
amount of bank credit used or the note-issues would now 
have any practical result other than a certain inconven- 
ience to the public. Barring the effect on some of the 
smaller interior banks, the probability is that the national 
banks in the aggregate would, even without the right of 
issuing notes, continue to expand their business and to 
earn such dividends as the current rate of interest would 
have allowed in any case. This is the natural inference 
from the fact already noted, that hitherto the displace- 
ment of their notes has been far more than made good by 
the increase of deposit accounts. 

That the government makes a saving by the issue of its 
own notes, so far as these are the substitute for an inter- 
est-bearing debt, and that it might make a still larger 
saving by occupying the whole field of paper circulation, 
is an independent consideration. It is, however, plainly 
a consideration of very little practical value, when we 
take into account the ease with which ordinary sources 
of income enable the government to reduce its debt as 
well as meet its expenditure, and the fact that the dis- 
position of a surplus revenue has been so far an insol- 
uble problem. Obviously, the government of the United 



416 QUABTEELT JOURNAL OF ECONOMICS 

States can afford to settle the currency of the country 
upon whatever basis is found to be for the convenience 
and advantage of the public, without being diverted from 
this aim by any necessity for securing a certain number of 
millions. It is conceivable that other functions now left 
to private enterprise might at a pinch be assumed by the 
Treasury and made to produce a revenue ; but few per^ 
sons would pretend that there is any fiscal reason which 
could be of weight in favor of such an assumption, if it 
appears that the general interest is in any way promoted 
by leaving the service to individuals. Economy at any 
cost is not our rule in dealing with other subjects, and 
there is no reason why it should be a controlling consider^ 
ation in the regulation of any part of our currency. 

Assuming, then, that the profits of note-circulation are 
but the ordinary profits of bank credit, such as will be 
earned under whatever system may finally prevail, and 
assuming also that the government can afford to forego 
the use of its credit in the form of notes, and to allow 
the banks to continue and extend the use of theirs, the 
question as to our banking system resolves itself into 
the inquiry, whether it is for the interest of the public 
to keep the deposit banking as far as possible under the 
national system, or to allow it to drift more and more 
into the possession of State banks or into private hands. 
The optional use of the right of circulation being re- 
moved, not much is required, it would seem, to turn the 
scale as between a national charter, on the one hand, 
with its numerous safeguards and its strict public super- 
vision, and a State charter, on the other, with its frequent 
absence of all limitations, — to say nothing of the com- 
plete license of private banking. The fact of the existence 
of nine hundred State banks and of thirty-six hundred 
private banking-houses is evidence on this point. "It is 
doubtful," says Mr. Trenholm, " whether the banks would 
find sufficient inducement to remain in the system with- 
out enjoying some privileges as to the issue of currency." 



DEPOSITS AS CUBBENCT 417 

The doubt whether there is power under the Constitu- 
tion to charter banks except in connection with an issue 
of notes may probably be dismissed ; but not so the doubt 
whether banks would care to hold national charters if the 
power of note-issue were withdrawn. For here the com- 
parative soundness and safety of the whole of our credit 
currency come into question, and we have to ask, What 
is the safest system for its more important as well as its 
minor element? If there is reason for demanding that 
the currency used in the small transactions of the com- 
munity shall be set^ure, there is also reason for requiring 
that the greater currency used in large transactions shall 
be secure. That complete supervision of the latter is im- 
possible from the natiire of the case does not affect the 
result : it is still for the advantage of all that as large a 
proportion as possible of the sources of our real currency 
should be kept under that organization which practi- 
cally is foimd to insure the best oversight and the safest 
management. There is no doubt as to which organi- 
zation that is. The conclusion seems, then, to be irresist- 
ible that, if the national system can retain its control over 
twelve hundred millions of deposits, as the figures now 
stand, and perhaps extend its control over a part of the 
eight or ten hundred millions held elsewhere, the commu- 
nity would buy this result cheaply by allowing the issue 
of such proportion of bank-notes as this mass of business 
would imply. The risk of inflation from over-issue would 
not be a serious element in the account. It would not 
be appreciably greater than at present; for, after all» 
inflation is as easy and, under favoring conditions, occurs- 
as surely with a system of pure deposit as with a note 
system, as the operations of our own banks in any period 
of excitement may testify. And, in any case, the security 
against the consequences of inflation is not to be found 
in the limitation or extinction of notes, but in specie 
redemption for all liabilities, and in the encouragement 
given to sound banking by steady oversight and publicity. 



418 QUABTEBLT JOURNAL OF ECONOMICS 

Such security, it may be presumed, we shall continue to 
have under the national system in as great a measure as 
at present. 

The kernel of the banking question for the United 
States, then, as it seems to the writer, is to be found in 
the future of the deposit system. K this is settled upon 
the best plan practicable, the substance of the question 
will have been disposed of; and, for the purpose of such 
settlement, the continuance or, perhaps it should be said, 
the revival of the right of issue might well be allowed 
as a makeweight. It is not within the scope of this paper 
to discuss the various propositions for meeting the prac- 
tical difficulty arising from the extinction of the national 
debt. It may be said of these propositions in general, 
however, that they are expedients for prolonging the 
existence of the national bank-note issue for such time 
as any part of the national debt may remain unpaid, post- 
poning the main question, which must present itself with 
the disappearance of the debt. In this part of the dis- 
cussion, as in others, the impression created by the success 
with which the present secured circulation has worked is 
so great, that it is hard to bear in mind that, after all, 
the kind of security held is not of the essence of the sys- 
tem. Evidently, the fundamental point is that the notes 
shall be secured by a preferred claim upon some suffi- 
cient portion of the property of the issuing bank. This 
portion of property, now required to consist of United 
States bonds, may, however, equally well consist of other 
securities of assured value. It is, indeed, entirely conceiv- 
able, so far as the principle of the system is concerned, 
that here, as in Germany, a solid circulation might be 
issued, of which the basis should be those general secu- 
rities and commercial obligations of short date, which are 
found sufficient to guard the credit of a bank with its 
own customers and the public. In short, if we once 
recognize the fact that the particular set of details which 
have marked our system so far are obsolescent, the market 



DEPOSITS AS CURRENCY 419 

is not without securities and the world is not without 
examples, on which a substituted system of circulation 
could be built up safely. 

It would no doubt be difficult to arrange a plan for 
securing notes as simple and perfect in its operation as 
that which the existence of a great public debt has given 
us the enjoyment of since the civil war ; but the actual 
difference to the public, if a new basis of security were 
to be sought, would probably not be appreciable. We 
are apt to underrate the extent to which the liabilities 
of the national banks are protected by the general safe- 
guards of the system, as distinguished from the specific 
pledge of securities. The deposit accounts of these banks, 
however, are secured only by the strength of the motives 
which usually prompt directors to prefer good invest- 
ments to bad. And it appears that, with an average of 
such deposits of over one thousand millions for the last 
five years, the loss to depositors has been less than one- 
fifth of one per cent., not of the movement, but of the 
average holding.* A loss, then, which is hardly greater 
than the mere unnoticed abrasion of some large classes 
of coin-circulation, measures the risk in practice of what 
would be called an entirely uncovered liability, under a 
well-organized system like the present. It is to the reduc- 
tion of a fractional loss like this upon the note-circulation, 
that the machinery of any system of pledged securities is 
directed. To find a working plan which can be used with 
practical safety within such limits cannot be a hard task 
for legislative ingenuity. 

Chables F. Dunbab. 

* Down to September, 1886, the prored claims against insolvent national 
banks since 1863 amounted to $44,236,247, on which $22,508,900 had been paid. 
The last five yean of the period were the worst, including the heavy failures 
of the Mechanics' National Bank of Newark, the Pacific of Boston, the Marine 
of New York, and the Exchange of Norfolk, which amounted to more than 
$12,500,000. For the five years, the proved liabilities of insolvent banks, in- 
cluding these four, were $17,047,245, on which $7,343,000 has been paid. The 
average loss of the five worst years, then, has been less than $2,000,000, or less 
than one-fifth of one per cent, of the deposits. 



AN HISTORICAL STUDY OF LAWS SYSTEM. 

11. 

In the spring of 1719, shares in the Company of the 
West, although higher than billeU cTitat in the market^ 
were still at a discount in current money. It was at this 
time that Law introduced into the French market deal- 
ings in futures, or, as such transactions were termed by 
the speculators, bargains in primes. We obtain exact in- 
formation as to the character of these bargains through 
the language used in a subsequent decree,* in which they 
were defined as follows : " Agreements to furnish or re- 
ceive at a given date shares, subscriptions, or polices f of 
the said company." Law's first transaction of this sort 
was patterned after similar dealings, with which the 
brokers in London had for many years been familiar.^ 
It was, however, made in so absurd a manner that its evi- 
dent purpose was to attract attention. He purchased the 
right to call for two hundred shares of the stock at par 
six months after date. Instead of paying a moderate 
\ sum for the privilege, he is said to have paid 40,000 
livres down, which was to be forfeited, if he did not take 

* Decree of Febnuury 11, 1720. Dahaatohaiup, t. ti., p. 21. 

t Polices were inaed, as the quotation in the text shows, by the oompany, 
and were nearly the equivalent of primes, 

t In 1692, John Houghton, F.R.S., began the publication of a series of 
misoellaneouB papers. A reprint from these papeis, in three volumes, entitled 
Husbandry and Trade Improved^ was edited by Professor Richard Bradley of 
Cambridge University in 1727. In No. 100, issued June 29, 1694, Houghton 
gives the form of a contract for a " refuse '* of shares : this was praoticaUy » 
*' call.^* No. 101, July 6, 1694, has for its substance ** the manner of putting 
stock.*' ^* They give many guineas to some to have liberty to put upon them ; 
that is, to make them take, and pay the money agreed for so many shares, at 
such a price, in such a time.^' Under the phrase, ^^ the great mystery of buy- 
ing more than all," explained in No. 102, July 13, 1694, we recognize the mod- 
em ** comer.'* 



AN HISTORICAL STUDY OF LAW'S SYSTEM 421 

the stock at the given time. Law's confidence that he 
could by such means stimulate a speculative movement 
in the stock of his company at once met with a response. 
Before his contracts matured, the stock had reached a 
price of ten times its par value. 

It is not to be supposed that Law rested his faith solely 
upon the effect of the " calls " which he had purchased. 
He had already secured for his company the management 
of the colony of Louisiana, the monopoly of its trade and 
of the beaver trade in Canada, the tobacco farm, and the 
privileges of the Company of Senegal. It had at that 
time been determined to annul the grants of the Company 
of the East Indies and the China Company, and to confer 
the privileges and monopolies which they had enjoyed 
upon the Company of the West.* In May, 1719,t an 
edict was issued announcing the union of these companies, 
by means of which, as was stated in the preamble, a com- 
merce which extended to the four quarters of the globe 
was imited under a single control. To place the Com- 
pany of the West in a position to satisfy the creditors of 
the two old companies, as well as to furnish funds for 
commercial transactions, it was authorized to issue, at ten , 
per cent, premium, fifty thousand shares, of the par value 
of 600 livres. The premium was payable in cash at the f 
time of subscription, and the principal of each share was . 

* The upward moTement of the market was assisted by stories of the dk- 
/ coyeiy of mineral wealth in Louisiana, which were from time to time spread 
I npon the market. Laoretelle (t. i., p. 272) says : *^ They paid for the lies of 
\ impudent traTeUers who affirmed the existence of mines discovered on the 
\ Upper Mississippi. They did more : they brought to the mint ingots which, 
they said, were brought from the mines, and declared that they assayed more 
•^ than the mines of Pern.*' Such stories had especial weight at this time, but 
the eagerness of the French to discoyer minerals in the valley of the Missis- 
sippi was not limited to the time when the company was in power. They 
neglected agriculture, and eagerly sought for mines during the entire period 
of their occupation. The credulity of the French public was, however, espe- 
cially open to deception at this time. Levasseur (p. 154) collates a number of 
anecdotes showing this. 

t Duhautchamp, t. v., p. 191. 



422 QUABTEBLT JOURNAL OF ECONOMICS .^ . 

to be paid in twenty equal monthly jiajments,' all pay- 
ments being required in current coin. The jaipe of the 
company was changed to *'*' y}^'^,S/^mj^^j ^^ ^^^ TnH^iMi *' 
'This edict was delivered to the Parliament May 23, 
1719 ; * but its execution was deferred until the 17th of 
June, in consequence of the failure of the Parliament to 
register it. At that date, the edict was put in force by 
decroe of jcojmcil, notwithstanding all opposition. Three 
days later,t a new decree was issued, from .which it ap- 
pears that, when the price of shares was fixed at ten per 
cent, premium, they were not worth par in the market ; 
but, even befoi*e the edict was published, old shares had 
risen to one hundred and thirty, and the desire for new 
shares was so great that subscriptions were offered for 
more than 60,000,000 livres. It was therefore required 
that every subscriber should be the owner of four of the 
old shares, in order to subscribe for one of the new. This 
limitation of the right to subscribe suggested to the spec- 
ulators the names by which they distinguished the two 
issues. The old shares were termed viire$y the new were 
called ^^. 

By this ingenious device, the furor for shares, which 
by the middle of June, 17T9,""was faMy "under way, was 
stimulated, although the rise which had already taken 
place and the pressure for the new shares' showed Urat 
a check was needed rather than a spur. Even upon 
Levasseur's interpretation of the edict, that the first 
monthly payment as well as the premium had to be paid 
before any certificate or evidence of title was issued, 
only 76 livres had to be paid down for a right in a 
stock, which was rising so rapidly in the market that 
there was no risk whatever that the penalty of forfeiture 
would be enforced against the initial payment ; for, if the 
subscriber should find himself unable to meet the monthly 
instalments, he could at any rate sell his right for an 

• Duhantcliainp, t. t., p. 204. t Ibid,, t. t., p. 207. 



AN HISTOBICAL STUDY OF LAW'S SYSTEM 423 

advance. In an edict issued July 27,* the time for mak- 
ing the first payment on these subscriptions was extended 
to September 1, from which it would seem that rights 
had been secured by merely paying the ten per cent, 
premium. Evidently, such rights were in the hands of 
persons whom it was desirable to protect. 

It had been announced April 22, 1719,t that 110,000,- 
000 livres in bank-notes were enough for trade ; but, on 
the 10th X of June, 60,000,000 livres were added, appar- 
ently in preparation for an impending increase of de- 
mand. The rapid transactions which now daily took 
^ place in stocks and contracts for future deliveries gave 
bank-notes that preference over coin which Law had pre- 
dicted. While coin was thus being attracted to the bank, 
and dealers were becoming accustomed to the use of 
notes in the street. Law was not content with merely con- 
trolling what coin there was in France. He cast longing 
eyes at the piastres which circulated in the miserable 
colony of Louisiana. To extend the circulation of the 
notes and to bring in the piastres to the bank, 25,000,000 
livres in notes were loaned the company on the 16th of 
July, 1719,§ which were to be used for the purpose of 
transporting to France the products of the colony and 
the coin which circulated there. Piastres were to be re- 
deemed at the mint, without charge for coinage. 

To complete the monopoly of maritime privileges with 
which the company had been endowed, the privileges of 
the Company of Africa to the exclusive rights of trade 
with the Barbary States were added by a decree issued 
June 4, 1719. II The profits of the mint for a term of nine 
years were also ceded on the 25th of July,** the company 

^Duhiiiitohainpf t. t., p. 222, art. vi. 

t Ibid,^ t. v., p. 182, including 10,000,000 to replace indorsed notes. See 
art. ii. 

X Ibid., t. T., p. 202. § Ibid,, t. v., p. 211. 

II Encydopldit Mithodique, " Commeice,'' i., p. 564. 
** Dnhautchamp, t. y., p. 215. 



424 QUARTEBLT JOURNAL OF ECONOMICS 

agreeing to pay for the same 60,000,000 livres in fifteen 
monthly payments ; and offices of the bank were ordered 
to be opened in every city in which there was a mint.* 

It has been positively asserted that about this time 

an organized attempt was made to cripple the system by 

the sudden and unexpected presentation for redemption 

of bank-notes amounting to several millions of livres, and 

that the effects were warded off by a diminution^ made by 

the decree of 26th of July, 1719,t reducing the loui% d'or 

to 34 livres. To escape loss, the conspirators converted 

their coin, which they had withdrawn, back into notes. 

In the preamble to the decree ordering the diminution^ 

reference is made to one ordered May 7, 1719. Forbon- 

nais discredits the alleged reason for the decree of July, 

/ and is disposed to regard the successive diminutions as a 

) portion of the system itself (designed to keep coin in the 

^ vaults of the bank) rather than a specific attempt to de- 

i feat a combination against the system.^ 

* The grant of the profits of the mint was jnstly regarded as a valuable 
concession to the company, and at once affected the price of shares. Many 
market quotations are scattered through the pages of the work entitled Mi- 
moires de la lUgtnce^ etc., k La Haye, 1723 (attributed to the Chevalier de 
Pioasens). Tlus work may have furnished Fantin des Odoards some of his 
quotations. The author (t. ii., p. 322) says the decree concerning the mint was 
published July 29, and shares immediately rose to 850. The 31st, they ranged 
from 400 to 450. August 1, they were at 450, and the 2d and 3d at 465. Prima 
for October 1 were sold at the same time at the rate of GOO Uvres. 

The market on the 3d of August declined, but rallied again on the 4th, and 
by the 18th had reached 630. The market, although on the whole buoyant, 
was evidently sensitive ; and we have evidence that speculators for a decline 
used methods which many have supposed were of more modem invention. 
Thus, from a pamphlet entitled A Ftdl and Impartial Account qf the Company 
qf Mississippi, published in London, 1720, we learn (p. 7) that about this time 
shares fell ^* only upon the news of Mr. Law^s being taken with a slight indis- 
position.'' 

t Dnhautchamp, t. v., p. 219. Any person desirous of following the 
changes of the coin during the years 1719 and 1720 will find them given in a 
table in Levasseur, Appendix H., p. 398. 

t By a decree of council, dated July 8, 1719, we learn that there were 
outstanding at that time a few of the crown notes. I have, in a previous 
note, called attention to the fact that the statement was made in one of the 



AN HISTORICAL STUDY OF LAW'S SYSTEM 425 

On the 25th of July,* the same day that the diminution 
was ordered, 240,000,000 livres in new notes were issued, 
bringing the total issue of bank-notes up to 400,000,000 
livres. Two days later, a third issue of shares was au- 
thorized.! To the two hundred and fifty thousand shares, 
comprising the original capital and the issue made when 
the Companies of the East Indies and China were ab- 
sorbed, fifty thousand additional shares were now to be 
issued, to pay for the privilege of the coinage. The par 
value of these new shtu^es was, like the others, 500 livres ; 
but the subscription price was raised to 1,000 livres, to be 
paid in twenty equal monthly payments, and the sub- 
scriber for a new share was required to own five shares 
of stock of previous issue. It was also announced that 
dividends would be paid upon the stock at the rate of 
twelve per cent, per annum. This announcement has 
provoked much discussion. It has been contended by 
the opponents of Law that a company which had for 
working capital only the 4,000,000 livres from the renter 
for the year 1717 and the 27,600,000 livres arising from 
the sale of the fille%^ the payment of the greater part 
of which was still in the future, was in no condition to 
promise dividends, which, when the whole of the stock 
should be paid in full, would amount to 18,000,000 livres 
per annum. The 4,000,000 livres per annum from the 
renU% was a fixed income ; but the estimated profits from 
the tobacco farm, from the coinage, and especially from 
the commercial companies, made up a set of doubtful items, 
which could be marshalled so as to prove either side of the 
case. It is probable, however, that the announcement of 
the twelve per cent, dividend, although made for the pur- 

deorees that none of them had been lasned by the Royal Bank. The decree 
of July 8 states that the greater part of the crown notes had already been 
conrerted into livrti toumois. It was therefore ordered that outstanding notes 
of this description should be presented for redemption within three months. 
Dohantohampf t. y., p. 210. 

* Dohantchamp, t. vi., p. 200, Statement. t Ibid., t. v., p. 222. 



426 QUABTEBLT JOURNAL OF ECONOMICS 

pose of Btimulating trade in shares, was founded upon a 
belief that the promise could be redeemed from the legiti- 
mate profits of the company. Levasseur figures the prob- 
able income of the company at that time at 16,500,000 
livres, putting the commercial profits at 3,500,000 livres ; 
but Dutot puts this item in 1720 at 10,000,000 livres, so 
that here we have a difference which shows how Law 
might have justified his faith in twelve per cent, earnings.^ 
The successive acquisition of the several monopolies, 
the promise of this dividend at a time when the increas- 
ing abundance of money was steadily depressing interest, 
and the steady and persistent attempts to draw people of 
small means into the vortex of speculation by distributing 
payments over a long period, and by giving certificates for 
partial payments which could be sold in the market, all 
worked in the same direction; and speculation daily in- 
creased. At this time there were two sets of certificates 
afloat, representing rights to acquire shares on which only 
50 livres had been paid; namely, the "^«t," on which 
the ten per cent, premium had been required at the 
time of subscription, and the ^^petite$ fille$^^^ as the last 
issue was called, on which the first payment of five per 
cent, of the subscription price must have been made, in 
order to acquire a title of ownership. Under these cir- 
cumstances, an edict was issued August 12,t in which 
it was ordered that subscriptions should be subdivided 
into as many shares as the bearer should wish. It was 

* LeTAsseur giyet the fdUowiog eitimate (p. 113, note) : — 

Tabact, 8,000,000 Ume. 

Monnaies, 6,000,000 " 

Beotes de r^Ut, 4,000,000 •< 

Profits da commerce, 3,800,000 ** 

16,600,000 liTiee. 

Dutot ^8 estimate of the oommeroial profits at 10,000,000 livres will be found 
in a discussion of the forty per cent, diyidend of the next year, ^commutes 
Financiers^ p. 855. For Daire^s criticism of the careless estimate made by 
Thiers, see jSconomistes Financiers, p. 435, note. 
iRecueil Glnircd, t. xxi., p. 107, note. 



AN HISTORICAL STUDY OF LAW*S SYSTEM 427 

further proyided that certificates of the new shares should 
be for one share each. Thus, every opportunity was 
offered for people of moderate means to join in the specu- 
lative movement, which, although not yet at its height, . 
was sufficiently pronounced to attract public attention. 
It was noticed, during the autumn of 1719, that billets 
d^Stat and other government notes, which up to that time 
had remained at a heavy discount, began to sympathize in 
the movement of shares, and then suddenly rose to par. 
The cause was disclosed August 27 * in a decree, which 
announced that the Company of the Indies had offered to 
increase the annual compensation paid for the General 
Farms by 3,500,000 livres, if the farms should be assigned 
to that company ; and that, in consequence of the offer, 
the contract with the company organized by the Paris 
Brothers, although it had five years to run, had been 
arbitrarily set aside in favor of the Company of the 
Indies. The increase of annual compensation was not the 
only nor the most conspicuous benefit to the State which 
this change was to bring about. As a mark of its grati- 
tude to the government, the company offered to lend the 
king 1,200,000,000 f livres at three per cent, per annum, 
to be applied in the redemption of the rentes and other 
charges, and of the billets JCStat and other government 
notes. To raise this money, the company was authorized 
to issue either actions rentiires au porteur X or contracts 

* Dnhaatchamp, t. t., p. 225. The oontnusts comprised under the General 
Farms are giren in detail by the decree, and indade the DanuUne tTOcdderU^ 
of which possession was not to be giyen until January 1, 1720. Bat, according 
to Dohaatohamp, t. ii., p. i8, the company was put in possession in November. 

t Daire states that the decree of Angnst 27 annoonced that the company 
offered to loan 1,500,000,000 livres to the king. The company did ultimately 
increase the amount offered to 1,500,000,000 livres, but the announcement of 
the increase of 300,000,000 livres was made in the decree of October 12. In 
this latter decree, it was also promiwd that no more shares should be issued ; 
and special mention was made that the power to continue the dindmUUms of 
specie, at such times as should be deemed appropriate, was reserved. 

X Actions simpU* were those which participated proportionately in the 
profits and losses of the company. AcHons rtntieres had a fixed guaranteed 



428 QUARTERLY JOURNAL OF ECONOMICS 

for rente$^ to be payable by the company at three per 
cent, per annum. In return for this loan, the govern- 
ment was to give the company three per cent. rente$j as 
fast as the money should be paid over. The various 
privileges of the company were extended for a term of 
fifty years. August 81,* a decree was issued specifying 
more particularly the details of the proposed redemp- 
tions, announcing that the government obligations would 
be redeemed in coin or notes, at the option of the bearer, 
and declaring that neither the rentes issued by the gov- 
ernment to the company, the actions rentiires^ nor the 
rentes of the company issued to individuals could be re- 
tired for twenty-five years. Other details connected with 
the adjustment of the rentes on the H8tel de Ville de 
Paris were provided for in a decree of September S.f 
Thus, by the stroke of a pen, the holders of the greater 
\ part of the government indebtedness found their invest- 
ments destroyed at a period when the decline in interest 
' and the rise in the value of real and personal property 
^ seemed to cut them off from all avenues for investment 
/ except those which led up to the system itself. The 
/ Company of the Indies became practically the sole cred- 
^ itor of the government. The interest charges on the gov- 
ernment debt were reduced to a uniform rate of three 
per cent., the only exception to which, at that time, was 
the annual charge of 4,000,000 livres, arising from the 
rentes in which the capital of the Company of the West 
had been funded. These rentes the company voluntarily 
offered to exchange for three per cents., and the accept- 
ance of this offer was announced in a decree on the 19th 
of September.^ 
The funds under control of the company were all 

income, bat did not participate in diyidends. Actions inUress4es held a middle 
ground. They had a fixed guaranteed income, and also had certain rights to 
participation in diyidends. See the Encyclop6die of Diderot and D^Alembert. 

*I>iihaatchamp, t. v., p. 233. t Ibid,, t. v., p. 240. 

t Ibid,, t. v., p. 251. 



AN HISTORICAL 8TUDT OF LAW'S SYSTEM 429 

devoted to specific purposes except the monthly payments 
arising from the subscriptions to the issue of June, called 
the fille$. The amount to be paid in on this account be- 
fore January 1, 1720, the date fixed for the suppression of 
the rentei, was so ridiculously inadequate that it is evident 
the company expected that the rentien would be com- 
pelled to surrender the government rentes^ and accept the 
actions rentiiren and rentes of the company*; but these 
securities do not appear to have figured conspicuously in 
the redemptions. It became necessary, then, to issue more 
shares. Three hundred thousand shares, issued in lota 
of one hundred thousand at a time, were offered to the 
public September 18, September 28, and October 2.t 
The activity of speculation, stimulated by the needs of 
those whose investments had been disturbed by the re- 
demption of these rentes^ enabled Law to place the sub- 
scription price of these shares at 5,000 livres a share. 

The new shares were to be paid for in ten monthly 
payments of 500 livres each, and from this fact were at 
once called by the speculators the cinq^ents. On the 
12th of October, J the company increased its loan to the 
government to 1,500,000,000 livres, an amount which was- 
nominally furnished by the new subscriptions.§ The sub- 
scribed capital now amounted to six hundred thousand 
shares, and it was promised that no more shares should 
be issued. The subscriptions for the first lot were made 
payable in bank-notes or coin ; but this was modified Sep- 

•Law, in Ilia " Reply to Two Letters,^' wrote as follows : " Wiih regrard to 
the rerUierSy who alone are at present afraid of the system, the company's 
design was not to min them, but rather to enrich them. Its intention was that 
those who were reimbursed should purchase the shares which were offered on 
the market for less than their ralue," etc. J^conomistes Financiers^ p. 623. 

t Duhautchamp, t. t., pp. 249, 267, 258. X Ibid,, t. v., p. 264. 

§ Leyaaseur, pp. 127, 128, gfiyes the detaiU of the amounts of the rentes and 
debts, which make up the sum of 1,500,000,000 liyres. Dutot says the company 
loaned his Majesty 1,600,000,000 livres. The 100,000,000 necessary for the con- 
version of the company's four per cent, rentes were not included in the 1,500,- 
000,000 estimate. 



430 QUABTSBLT JOURNAL OF ECONOMICS 

tember 26 * by a decree which required future payments 
to be made in billeU d^Stat and other State notes and in 
orders on the treasurer of the company .f This was osten- 
sibly done to favor those whose rentet and notes had been 
ordered to be redeemed. The three hundred thousand 
shares were ordered to be issued in certificates for one 
share each. 

The company, which two years before found it difficult 
to float 100,000,000 livres of capital in hilleU JCStat at 
thirty, was now besieged with applicants when it offered 
for subscription shares representing 1,500,000,000 livres. 
But even now, when the doors of the HStel de Nevers were 
thronged with crowds, and porters could earn fortunes by 
aiding people to secure their redemptions and subscrip- 
tions. Law neglected no opportunity to convince the pub- 
lic of his hold upon the favor of the regent. On the 12th 
of October, a decree was issued annoimcing the. suppres- 
sion of the offices of the Receivers-General and the subro- 
gation of the Company of the Indies in their rights. 

Payments were now constantly maturing on the fillet^ 
the petiteS'fiUei^ and the einq-eetUi. The latter were by 
far the more exacting, and even the second payment bade 
fair to tax beyond their capacity those who were operat- 
ing on margins for a rise. It was therefore decreed on 
the 20th of October J that the nine payments which re- 
mained to be made on the stock of this subscription could 

* Duliaiitchamp, t. t., p. 255. 

t Doubts hATe been expressed as to whether the order requiring payments 
to be made in billets iTHcU, etc., was carried out. Dohautchamp says that the 
effect of the decree requiring the use of treasury orders, etc., for payments 
caused securities of this description to rise ten per cent. Forbonnais sajrs that 
on the 25th of September the company agrreed to reoeire bank-notes, with ten 
per cent, extra. From this, it would seem as if the order to which Forbonnais 
alludes, although nominally dated September 25, must really hare been issued 
to modify the results of the decree of the 2Gth. The statement as to the use of 
hiUets (THat^ etc., in payment of subscriptions, is repeated in the decree ad- 
mitting pensions to the same privilege, issued October 21. Duhautchamp, 
t. v.. p. 271. 

X Duhautchamp, t. y., p. 208. 



AN HISTORICAL STUDY OF LAW'S SYSTEM 431 



be made three at a time, — in December, 1719, March, 
1720, and June, 1720.» 

During the time that the cinq-eents were being launched 
upon the market, the eagerness of the public to obtain 
them was so great that the street on which the oflBces of 
the company were situated was thronged with carriages 
and crowded with people. 500 livres in billets cTStat 
would secure a certificate of one payment on a new share, 
with all its chances of rise, the market price of fuU paid 
shares being 8,000. The old shares were, as a conse- 
quence, freely offered for sale for purposes of conver- 
sion; and in the early part of October, at a time when 
new shares were daily rising in value, old shares fell from 
8,000 to 4,000 livres. Forbonnais regards this decline as 

* In this oonnection, a glance at the sitnation may be interesting. The 
seyeral issues of stock were upon the f oUowing terms : — 



Date of Issue. 



Number 

of 
Shares. 



Rate of 
Subscrip- 
tion per 
Share In 
IdTres. 



Terms of Payment. 



CMitalin 
UTres. 



Or^alStockr-jHferes, 
'^J^yJIISSil^^^tites.tmes, 



Fourth Issue,— 
Sept. 13, 1719, 



Sept. 28, 1719, 
Oct. 2, 1719, J 



Clnq-oents, 



200,000 
60,000 
50,000 

300,000 



600 
660 

1,000 

6»000 



Billets d'6tat @ 80. 

Premium at sub- 
scription. Capi- 
tal m 20 monthly 
instalments. 

Payable 6% a mo. 



Payable 10% a mo. 



100,000,000 
27,600,000 
60,000,000 

1,600,000,000 



Oct. 4, 1719, Unauthorized, 



600,000 
24,000 



1,677,600,000 



Amount which the company had reoeired up to the middle of October, 
1719, assuming all dues for subscriptions to haye been paid : — 

Liyres. 

Original stock (iuTested in rentes), 100.000,000 

Fllles (6 monthly instalments and premium), . . . 8,750,000 

Petites-fllles (4 monthly instalments), 10,000,000 

Cinq-cents (1 monthly Instalment) 150,000,000 

268,750,000 

The student of this subject may perhaps prefer to consult a similar table, 
prepared by Dutot, which differs somewhat in results (see Daire, p. 912). 



432 QUABTERLT JOURNAL OF ECONOMICS 

inexplicable, and Levasseur caUs it a strange intoxication 
which drew a distinction between shares of the same kind 
in the same company. It is easy, however, to understand, 
inasmuch as all dealings in shares were speculative, that 
those who believed that shares would continue their magic 
progress upward would prefer the chances for gain on six- 
teen einq-eents rather than on one mire. 

Law, in his several memorials and letters, had repeat- 
edly pointed out that the progress of the State was 
seriously hindered by the system of taxation. In the 
plenitude of his power, he inaugurated several reforms, 
which added to the popularity of the company. Various 
important internal improvements were also begun in dif- 
ferent parts of the kingdom.* 

On the 24th of October, values had risen so that more 
notes were needed. One hundred and twenty million 
had been issued September 12. One hundred and twenty 
million were furnished now. On the 26th, a decree was 
issued, ordering a guard of archers to be stationed in the 
Rue Quincampoix, to protect dealers from thieves and 
vagabonds, and to preserve order in the crowd. The at- 
tention of all Europe was concentrated upon this narrow 
street, the dwellings in which, from basement to attic* 
were converted into offices. Provincials and foreigners 
hurried forward to join in the excitement at the capital, 
to reach which by the ordinary means of communication 

*Angii8t 31, coinoident with the redemption of the rentes^ a nnmber of 
offices connected with their management were abolished. September 19, the 
impost on oil, tallow, and cards was suppressed. October 12, the ReoeiTei»- 
Qeneral were suppressed. October 28, the duties on grain and yegetables be- 
tween the provinces was abolished. In NoTember, the company offered to 
develop the fisheries, without seeking for a monopoly. The tobacco taxes 
were concentrated in a single duty. The vexatious duties of the city of Paris 
were in part remitted, and the rest were concentrated into one entry duty. 
Duhautchamp, t. v., p. 251 ; Becueil d' Arrests, etc., pp. 249, 252. For the list 
of public works undertaken, and for a graphic description of the revival of 
trade, the growth of manufactures, and the prosperity of the laboring class, 
see Levasseur, pp. 181, 182. 



AN HISTORICAL STUDY OF LAW*S SYSTEM 433 

arrangements had to be made weeks in advance.* "In 
this general fermentation," says Forbonnais, " prices rose 
to eighteen or twenty thousand livres." The same market 
quotation is given by Duhautchamp, an eye-witness of the 
scenes which he describes. These figures cannot be ac- 
cepted as representing any regular market. Melon,t who 
was Law's secretary, quotes shares at 9,000 at the end of 
1719. Dutot, who was one of the cashiers of the Com- 
pany of the Indies, says that in the month of November, 
1719, people were surprised to see shares rise to 10,000 
livres, notwithstanding the fact that in a single week the 
company put them on the market to the amount of thirty 
millions, in order to break the price. Law himself, in 
April, gave 10,000 livres as about the highest point they 
reached. The causes of this prodigious increase in price 
Dutot attributes to the union of the several privileges and 
monopolies in the company, to the lack of other channels 
for the investment of the funds arising from the redemp- 
tion of the rentes^ and, finally, to the fact that the bank 
loaned, on margins, 2,500 livres a share, at two per cent, 
interest. According to Forbonnais, Law's efforts were 
then put forth to prevent too rapid a fall of shares. He 
was able to sustain the price for a fortnight, but the only 
result was to aid those who were selling out their shares 
in order to realize. 

During the month of December, several decrees were 
issued for the purpose of checking the disposition to 
realize in coin, and to show the continued favor with 
which the system was regarded by the Court.J Decem- 

* ** At the end of 1719, the nnmber of provinciiils and foreifirnen who had 
come to PariSf either from curiosity or in order to speculate, was estimated at 
500,000." Law: Son Syttkme et son :^poqu€, par P. A. Cochnt, Paris, 1853, 
p. 81. 

t Estai Politique sur le Commerce^ par Jean-Frao^ois Melon. Reprinted in 
Daire^s ^conomistes Financiers. 

I December 1, it was decreed that creditors conld denumd payment of 
debts due them in bank-notes, and all tenders of payment not made in notes 



434 QUABTEBLT JOURNAL OF ECONOMICS 

ber 9,* the monopoly of refining and separating the pre- 
cious metals was granted to the company. December 21,t 
bank-notes were fixed at five per cent, above current silver 
coin, at which rate the bank would exchange notes for 
silver. Silver could be used thereafter only in payments 
under 10 livres, and gold in payments under 800 livres. 
All foreign letters of exchange were ordered to be paid 
in notes. Even up to the time that this decree was issued, 
the impossibility of carrying on the enormous speculative 
business of the Rue Quincampoix in coin had kept notes 
at a premium of eight to ten per cent. The disposition to 
realize was, however, so strong that the purpose of this 
decree is evident. Law foresaw that, unless he could 
prevent the circulation of coin, it would all be quietly 
remitted across the border. A further issue of notes to 
the amount of 360,000,000 livres, perhaps intended to be 
the last, was made on the 29th of December, J bringing 
the total up to that date to the sum of 1,000,000,000 
livre8.§ 

-were declared nuU. Duliantoliamp, t. t., p. 277. No more conyeisions of 
gold and silver into notes were to be made in Paris ; but, to favor the move- 
ment of notes in the Proyinces, ihis clause applied to Paris alone. Dnhant- 
champf t. Y.f p. 277. A new coinage was also ordered. Forbonnais says it did 
not take place, but the public belief that the company would receive the 
benefit of it helped sustain shares. The fears of a general diminution caused 
by a decree, December 10, ordering a diminution for pieces of 20 sous, operated 
in the same way. Duhantchamp, t. ii., p. 156; Forbonnais, t. ii., p. 605. 
Dnhautchamp adds that four decrees, confiscating old gold and silver coin 
found in the houses of individuals, also helped shares. 

* Dnhautchamp, t. v., p. 285. 

t Ibid., t. v., p. 290. I Rid., t. vi., p. 200. 

§ The following list shows the actual issues of notes in 1719 : — 

Livres. 

Januarys, 18,000,000 

February 11, 20/»0,000 

AprUl 21,000,000 

April 22, 51,000,000 

June 10, 60,000,000 

July 25 240,000,000 

September 12 120,000,000 

October 24, 120,000,000 

December 29, 300,000,000 

1^)00,000,000 



AN HISTORICAL STUDY OF LAW'S SYSTEM 435 

December 80, 1719, a general assembly of the company 
fixed the dividends for 1720, in anticipation, at forty per 
cent, on six hundred thousand shares of the par value of 
600 livres each. Shares had declined somewhat at this 
time ; but, if we accept 10,000 livres as the market price, 
the dividend was at the rate of two per cent., or at the 
rate of four per cent, on the subscription price of the 
cinq-eents.* The estimates of the company's income show 
that a forty per cent, dividend could not have been paid 
on this capital from current earnings. It is true that, 
when the dividend was declared, only a small portion of 
the capital stock was fully paid. On the other hand, 
however, the company would not be entitled to credit in 
the estimate of earnings for all the receipts from the 
various grants until payment should be made for them. 
Even if the dividend had been legitimate, the outlook for 
the holder of rentes who had not secured an original sul>- 
scription was not encouraging. An investment of 10,000 
livres in rentes had secured him an annuity of 400 livres. 
The 10,000 livres now forced upon him would buy one 
share in the company, the income from which for 1720 
was promised at 200 livres. 

At a time when it took as many days to reach Paris 
from different points in the kingdom as it now takes 
hours, and at a period when public conveyances destined 
thither were engaged for weeks in advance, it was mani- 
festly impossible that the rentiers should have effected 
their conversibns within the period which had been al- 
lowed. Moreover, most rentiers had been cut off from 
whatever advantage was to be had from an original sub- 
scription by the system of favoritism which prevailed.! 

* Dutot, in his estimfttes, inclndea twenty-four thonsand additional sliareSf 
which had been issued on the 4th of October, bat concerning which no announce- 
ment had been made to the public. 

t The power which Law possessed to aid speculators made him the most 
conspicuous person in the kingdom. ** I saw him/' says Voltaire, ** arrive 
in the Palais Royal, followed by dukes and peers, marshals of France and 



436 QUABTERLT JOURNAL OF ECONOMICS 

We have seen what the result was of purchasing shares at 
market prices. It is not surprising, then, to learn that, 
notwithstanding decrees had been issued August 31,^ 
October 26, and November 9,t 1719, ordering the sup- 
pression of the rentes and calling upon owners of them 
to receive the redemption money, many rentier$ still 
hesitated to accept the reimbursement. Among the 
first acts of Law, when he became Controller-General of 
France, in January, 1720, were several decrees on this 
subject, issued on the 10th, 12th,j: and 18th of January, 
and on the 6th of February.§ The ultimatum offered 
in the last was the arbitrary conversion into a two per 
cent, rent-e^ if the redemption was not accepted by 
Julyl. 

The decree of the 10th of January || is especially worthy 
of notice, as it apparently betrays the same desire to 
foster speculation which is noticeable throughout the 
decrees of this period ; while, according to Law, its pur- 
pose was directly the reverse. The reluctant rentier$ 
were practically the only class of men of means who 
had not been tempted into the market. The attempt to 

bishops.*' Precis du Steele de Louis XV, ** Law, bedewed in liia house by 
suppliants, saw them force his gate, enter from his garden, faU into his study 
through the chimney.^' M^moirts CompUts ft Authentiques du Due de Saint" 
Simon^ Paris, 1829, t. xrii., p. 355. 

Clement quotes from a letter from the Princess Palatine, mother of the 
regent : ** * Law,* says she, * la followed to the point that he has no rest night 
or day. The duchess kissed his hand before everybody.* '* Portraits Histor- 
iques, par Pierre Clement, p. 260. *^ Towards the close there was no getting 
speech with him without money. The Swiss must be fee*d at his gate, the 
lackey for admittance into his ante-chamber, and the valets de chambre tar 
the privilege of access to his presence chamber or closet.*' Memoirs qf Charles 
Lewis^ Baron de PoUnitz^ London, 1739, toI. ii., p. 244. 

• Duhautchamp, t. t., p. 233. 

t The decrees of October 26 and November 9 are both alluded to in the 
decree of February 6, in the preamble. Duhautchamp, t. vi., p. 15. 

I Duhautchamp, t. vi., p. 3. 

§ Decree of February 6. Duhautchamp, t. vi., p. 15. That of January 18 
is alluded to in the preitmble. 

II Levasseur, p. 195. 



AN HISTORICAL STUDY OF LAW^S SYSTEM 437 

force the conversion of their rentes into actions rentiires 
or actions intSressSes * had failed. By this decree, shares 
were offered at 11,000 livres, 1,000 livres cash and 10,000 
in six months' time. As an investment, there was evi- 
dently no special inducement for the rentier to sub- 
scribe for these primes^ which were known in the market 
afterwards as the anciennes primes,^ They would net 
him less than two per cent. ; but, with his 11,000 livres, 
there was an opportunity afforded to secure eleven primes 
instead of one share, and thus to join the mob of specu- 
lators. Duhautchamp alludes to this decree without giv- 
ing the date, and places it in chronological sequence, as if 
it had been issued in February. He supposes the motive 
for it to be an intention to stimulate speculation, and says 
it failed because the ground had already been covered by 
dealers in contracts of the same character. It was in 
consequence of this failure, he says, that February 11 J 
a decree was issued which thereafter forbade individuals 
to deal in contracts for future delivery, and reserved this 
privilege exclusively to the company. Dealers evading 
this decree by antedating their contracts, this was for- 
bidden by decree of February 20 ;§ but even then, ac- 
cording to Forbonnais, the forbidden trade was continued 
by parole contracts. || 

*HaTi]ig a guaranteed income and also participating in the general profits. 

t According to Doliautchamp, this issne was known in the market under 
the name of Polices de la Compagnie des Indes, t. iii., P* 43. 

I Duhautchamp, t. vi., p. 21. § Ibid,, t. vi., p. 30. 

II The rise of the system, the sudden increase of the circulating medium, 
and the rapidity with which property changed hands during this period 
brought in their train prodigal expenditure and extrayagant display. The 
speculators came to be known as Mississippians ; and their language in their 
dealings, concerning meres and Jilles, polices and primes, cinq^cents and petites' 
Jilles, intelligible only to those familiar with the market, was called the hin- 
guage of the Mississippians. Paris was flooded with pamphlets and pasquin- 
ades, with sonnets, satires, and cartoons. The titles of many pamphlets in 
English, Dutch, and French will be found in Mr. Winsor's editorial note to 
chap, i., vol. vi., Narrative and Critical History {^America, Professor Dunbar 
has given me the following titles, procured at the British Museum: Mr. 



438 QUARTERLY JOURNAL OF ECONOMICS 

I have said that the apparent purpose of this decree was 
to foster speculation ; and, when this apparent purpose is 
corroborated by the opinion of one who was on the spot, 
it seems almost conclusive. Yet, if we accept Law's state- 
ment, this conclusion would not be just. He asserted 
positively that he offered these primes with a view of 
checking the rise of the stock. " I did what I could to 
hinder people from buying futures, in the hope that shares 
would rise. I even told them that I would check the rise 
at 9,000 livres ; and, to convince them, I proposed to the 
company to receive 1,000 livres in primes^ and to enter 
into an undertaking to deliver shares at 10,000 livres." 
So many presented themselves, he adds, that the clerks 
could not write the certificates. "We were obliged to 
have them printed. They brought 300,000,000 livres to 
the treasury." 

The position of affairs which confronted Law at this 
time was not encouraging. The high prices of shares 
towards the end of 1719 had started people in the process 
of realizing. He apparently made up his mind that, if the 
public would not sustain the system through the market, 
he would try to maintain it by force. There had been, 
during the latter part of 1719, several confiscations of 
old coin which had been withheld when a recoinage was 
ordered.* A decree of the 20th of January, 1720,t 
authorized the search of all houses, even those of secular 
and regular religious communities for coin which might 
have been concealed there. In addition to such forcible 

Law* 8 Character Vindicated, by William Friendly (pseudonym). Le Secret du 
Systeme de M. Law d^voili ; en Deux Lettres Sorites par un Due et Pair de 
France d, un Milord Anglais, La Haie, 1721. This pamphlet is quoted by 
Dutot. A Letter to Mr, Law upon his Arrival in Great Britain (in defence of 
his projects in France), 2d ed., London, 1721. The Memoir qf the GreaJL Mr. 
Law, by Gray, a Soots Gentleman. 

*See a decree ordering the confiscation of gold and silver coin, seized 
while in possession of one Boucher, a laborer living in the village of Lumigny. 
Recueil d^ Arrests, p. 238. See also Dnhantchamp, t. ii., p. 157. 

t Reateil Gin^al des Anciennes Lois, t. xii., No. 189, p. 175. 



AN HISTORICAL STUDY OF LAW'S SYSTEM 439 

measures as these, it was determined to extend arbitrarily 
the circulation of the bank-notes. In several of the pre- 
vious decrees on this subject, clauses had been introduced 
to limit their application to cities in which the bank had 
offices. Throughout the provinces there were places 
where the people were reluctant to accept the bank-notes. 
On the 28th of January, it was decreed that bank-notes 
should have currency throughout the kingdom.* Levas- 
seur's table shows that there had been diminutiom of the 
coin in July, September, and December, 1719, another 
January 1, 1720, and an augmentation January 22.t 
By the decree of January 28,t another diminution was 
ordered, and the removal during February of coin and 
bullion from cities in which there was a mint was for- 
bidden.§ The company was authorized to make domi- 
ciliary visits in all houses and palaces of individuals or 
communities, and any specie seized therein was to be con 
fiscated for the benefit of the informer. 

This decree appears to have been rigidly enforced, and 
to have caused for a time a deplorable condition of affairs. || 
Those who had coin in their possession lived in constant 
fear; and abominable instances of treachery constantly 
came to light, which showed that neither ties of friend- 
ship nor of affection could be relied upon for protection 
against the terrible temptation. On the 4th of Febru- 
ary,** the wearing of diamonds, pearls, or precious stones 
was, after the first of March next, forbidden, under pen- 

• Dohantchampf t. vi., p. 7, No. 55, § 3. 

t Leyasseur, p. 398. The details of these decrees are also g^ven by Levas- 
senr, p. 204. 

I Dnhaatchamp, t. yi., p. 4. § Ibid.t t. yi., p. 6, No. 55, § 3. 

II *' They excited, encouraged, paid informers. Valets betrayed their 
masters. Citizen spied upon citizen. Tlus made my Lord Stair say that there 
could be no doubt of Law^s Catholicity, since he established the Inquisition, 
after having already proved transubstantiation by changing paper to money. ^* 
M^ moires Secrets star Us Regnes de Louis XIV, et de Louis XV., par Duclos 
(Petitot and Monmerqu^'s collection), t. Izzri., p. 408. 

•* Duhautchamp, t. vi., p. 11. 



440 QUABTERLT JOXTRNAL OF SCOKOMICS 

alty of confiscation and 10,000 livres fine.* On Uie 
18th,t goldsmiths were forbidden to manufacture or offer 
for sale vessels of gold or silver, except a few articles, the 
weight of which was specified. On the 19th4 a decree 
was issued prohibiting any person, and even any ecclesi- 
astical community, from keeping more than five hundred 
livres in coin, and forbidding all persons or communities 
except goldsmiths and jewellers to have in their posses- 
sion any articles of gold or silver, seizures and confisca- 
tions being for the benefit of the informer. All payments 
of 100 livres and upward were to be made in bank-4iotes. 
January 29, § a decree appeared offering inducements 
which amounted to a reduction of twenty-five per cent, 
for the payment of taxes in bank-notes. February 6,|| 
the bank was authorized, under the nominal pretence of 
supplying the place of indorsed notes, to issue notes to 
the amount of 200,000,000 livres. February 9,*» all legal 
proceedings which had arisen or which might arise con- 
cerning bank-notes were ordered to be brought before the 
council. February ll,tt the decree was issued which for- 
bade transactions in "futures" between individuals, and 
reserved to the company the exclusive right to sell them. 
February 194t all creditors of the State were ordered to 
be immediately paid. 

On the 23d of February,§§ the Royal Bank, with all its 
privileges, was absorbed by the company, and its circula- 

***ETei7 day, we Baw n